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02/17/1999 |
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E. Scott Johnson Appeared in The Daily Record Maryland's new name availability law, which took effect on October 1, 1998, simplifies the rules the State Department of Assessments and Taxation of Maryland (Department) follows when determining the availability of business entity and trade names. It accomplishes this by abolishing the "misleadingly similar" standard that guided the prior law and replacing it with simpler rules that permit side-by-side registrations of virtually — but not exactly — identical names. While the new regulations are easy to understand and apply, there is a trade-off in increased risks both for new filers and for existing businesses. Under prior law, if the only difference between two names was the tail (e.g., "Inc." and "LLC"), only the first to file with the Department would be approved (with certain exceptions), and any other filings for the same name with a different tail would be denied. Further, a trade name registration for "Jones" blocked filings for "Jones, Inc.", "Jones, LLC", "Jones, LP", etc. The Department's old name screening rules were no substitute for a proper trademark search, nor did they consider all the factors routinely considered when reviewing trademark searches such as the similarity of goods or services sold, phonetic equivalents, existence of federal trademark registrations, etc. The old rules would not prevent a company from incorporating under a name too similar to another Maryland entity to survive the trademark law's "likelihood of confusion" test for infringement (e.g., "Safeway Stores, Inc. would not have blocked Safeway Properties, Inc."). Nevertheless, the old rules operated to protect both filers and existing businesses from many potential conflicts (e.g., the Department would have rejected concurrent filings for "Safeway Stores, Inc." and "Safeway Stores, LLC."). Under the new law, identical names within the same category of business entity will still be refused (e.g., "Jones, Inc." is unavailable if "Jones, Co." or "Jones, Ltd." is of record). However, it will now be possible to have a "Jones, Inc.", "Jones LLC", "Jones LP", and a trade name for "Jones", all coexisting and owned by separate entities. Even within the same category of business entity, nearly any difference between names, other than the tail, will be sufficient for acceptance by the Department. While the new law is easier to apply, without the "misleadingly similar" filter, the Department inevitably will accept misleadingly similar entity and trade names. The acceptance by the Department of names that it would have denied under the old rules has significant consequences both to new businesses and to those currently conducting business in Maryland. New entities with names that would have been rejected under the old standard, but accepted under the new, are more likely to infringe the "trademark rights" of prior users of similar names. On the flip side, existing companies are now more likely to encounter infringing uses of their names by newly formed entities, which may be emboldened by the Department's acceptance of the name, incorrectly interpreting such acceptance as a right to use the name. The Old Law Prior to October 1, 1998, a proposed entity name or trade name that was the "same or misleadingly similar" to the name of any foreign or domestic corporation, limited partnership, limited liability partnership, limited liability limited partnership or limited liability company on file with the Department, or any trade name or reserved name on file with the Department, would be rejected for filing. The term "same or misleadingly similar" was defined under a byzantine and unusual set of regulations. Applying them could be like working a "brainteaser" puzzle. Much of the complexity resulted from the Court of Appeals' decision in Waverly Press, Inc. v. State Department of Assessments and Taxation ( 312 Md. 184, 539 A.2d 223 (1988)). In Waverly, the Court held that the tails of business entities must be considered when determining whether the name of a corporation is the same or misleadingly similar to a limited partnership, holding "Waverly, Inc." and "Waverly Limited Partnership" not "misleadingly similar" to one another. Prior to Waverly, the Department had refused to register names that were identical except for their tails. Although Waverly addressed only comparisons between corporations and limited partnerships, the Court's reasoning could be applied to comparisons between other business entities. The user-unfriendly complexity of the old regulations was exacerbated by the Department's efforts to apply Waverly to limited liability companies, limited liability partnerships and limited liability limited partnerships — entities that did not even exist when Waverly was decided. The Department developed a policy, based on its interpretation of applicable statutes, the regulations and Waverly, of considering the tails when making comparisons between some entities but not others. For example, the name of a corporation would not be considered the same or misleadingly similar to the name of a limited partnership if the only difference between the names was the tail, unless the only difference between the two names was the word "partnership" as in the case of "Jones, Limited" and "Jones Limited Partnership". On the other hand, tails were not considered when comparing limited liability companies to corporations on the theory that these entities were more typically encountered, creating a higher likelihood of confusion between entities. So, "Jones, Inc." would not be accepted by the Department if "Jones, LLC" was already on file. Nor were tails considered when comparing limited partnerships and limited liability partnerships. Moreover, "Jones, Inc.", "Jones, LLC", "Jones Limited Partnership", "Jones, LLP", or "Jones, LLLP" were "unavailable" if the trade name "Jones" was already of record. Under the misleadingly similar standard, the presence or absence of letters that did not "sufficiently" alter a name would not provide an adequate distinction (e.g., "EXXON, Inc." was misleadingly similar to "EXON, Inc."). Also, if a proposed name was "likely to be confused with an existing name by persons giving written communications concerning them," the proposed name would be deemed misleadingly similar. In determining whether two names were "likely to be confused", the Department applied a "third word" test. Under this test, the Department would determine whether the third word of a proposed entity name was different from the third word of existing names. If the third word was different, and if the third word was not a geographical designation or a word that implied the proposed entity was an affiliate of an existing entity having a similar name on file, the Department would accept the proposed name. The New Law The new regulations make no pretense of screening for "misleadingly similar" names, requiring only that the proposed name is "distinguishable upon the Department's records" from (i) the entity name of an entity organized or authorized to transact business in Maryland; (ii) an entity name reserved or registered under Sections 1-501 through 1-508 of the Corporations and Associations Article of the Annotated Code of Maryland; and (iii) the disclosed assumed name adopted by a foreign entity authorized to transact business in Maryland (Section 1-504 of the Corporations and Associations Article of the Annotated Code of Maryland). A name will be "distinguishable upon the Department's records" if it is "distinctive" from (i) the names of other active entities in Maryland; (ii) active trade names; (iii) reserved names; (iv) registered names; and (v) disclosed assumed names of foreign entities. "Distinctive" is much simpler to apply than the "misleadingly similar" standard. Under the new regulations, a name is distinctive from another name "if a comparison of the two written names reveals the presence of a letter or numeral in one that is not in the other." (Under the new law, "EXON, INC." is distinguishable from EXXON, Inc.) Nearly any difference now will make a name distinctive from one on record with the Department. The new regulations provide only four (4) "non-distinctive factors" that work as exceptions to the rule that a name will be distinctive if contains only a letter or numeral that distinguishes it from an existing name: (i) spacing (e.g., "Maryland, Inc." is not distinctive from "Mary land, Inc."); (ii) the presence or absence of lower or upper case letters (e.g., "Smith Chartered" is not distinctive from "SMIth Chartered"); (iii) the presence or absence of the words "the", "or", "and", or "of" (e.g., "The ABC, Inc." is not distinctive from "ABC, Inc." or "AB and C, Inc."); and (iv) tails between similar organizations (e.g., "WYZ Corp." is not distinctive from "WYZ, Inc." or "WYZ, Limited"). The most important difference between the old and new rules is that now the tails of all entities that designate different business categories will distinguish otherwise similar names. Therefore, "Jones, Inc." will be available even if "Jones, LLC", and "Jones, LLP", for example, are already of record. The new law applies to trade names in the same way. The trade name "ABC, Inc." would be distinctive from "ABC, LLC" but not from "ABC, Limited". Similarly, the trade name "ABC" would be distinctive from "ABC Supplies" but not "The ABC". If a proposed trade name does not include a tail and is being compared with an identical trade name with a tail, the names will be distinctive ("Jones" is distinctive from the trade name "Jones, Inc."). Change Needed The new name availability law solves three problems. First, Maryland's old name availability regulations were difficult to apply. Application of the regulations and the Department's interpretations of Waverly required that each proposed name be considered individually by Department personnel -- a time consuming effort exacerbated by the fact that the Department's interpretation of the old regulations had been the subject of lawsuits. Moreover, the simpler "distinguishable" standard is readily adapted to the new system recently acquired by the Department to handle charter filings. Second, Maryland's name availability provisions were out of step with many other states. Foreign corporations seeking to register to do business in Maryland were forced to contend with Maryland's arcane name availability regulations and were too often prevented from qualifying to do business in Maryland under their existing names. The new standard better harmonizes Maryland law with the laws of other states. Finally, the old standard was intended to protect the public against confusion between business entities and to prevent unfair competition. The name availability rules were neither effective at nor the appropriate vehicle for addressing consumer protection or unfair competition. Risks - New Entities Without the "misleadingly similar" filter, new businesses will be more likely to obtain a name that infringes. Business owners sometimes mistakenly believe that because the Department has accepted a corporate charter, the corporation's name can be used in connection with any products or services the business sells. Nothing could be further from the truth. In fact, the acceptance of the name of a business entity or a trade name by a state corporations division has no bearing on whether that name as used might infringe a federally registered trademark or service mark, or common law rights in the name owned by another. Those who incorrectly conclude that the Department's "acceptance" of their entity or trade name filing constitutes a right to use the name, could experience a rude awakening as when Jones, Inc. sues Jones, LLC for name infringement. The old name availability rules — though flawed in many ways — did provide a measure of protection by screening names more thoroughly than will the new rules. While it has always been advisable to conduct some form of name search prior to adopting a new entity name, it is even more important now that the screening of names by the Department has been minimized. Only by conducting an independent search of existing business names and trademarks can one ensure that a proposed name will not infringe the rights of a prior user, whether within Maryland or otherwise. Trademark/business name screening searches generally include the U.S. Trademark Office records of registered marks and pending applications, as well as state trademark registrations, Dun & Bradstreet listings, trade journal listings, telephone directory listings from major metropolitan areas and certain other listings. A competent search report will indicate whether another user of the same name, or a confusingly similar name, has established superior rights to a name whether through use, registration or both. Risks - Existing Business The new law increases the likelihood that existing companies will encounter infringing uses of their names by newly formed entities with names that under prior law would have been rejected by the Department. This is especially true where two companies with similar names operate in a similar line of business. Business owners have more reasons than ever to protect their trade names and trademarks. The best protection is through federal registration. By obtaining a federal trademark or service mark registration, a business owner is better equipped to prevent other entities from using a confusingly similar name. While "trade names" are not registerable as such under the federal Trademark Act, many - if not most - trade names function in whole or substantial part as trademarks, service marks, or both, and are federally registerable as such. Conclusion With the abandonment of the misleadingly similar standard, names will be accepted by the Department that are nearly identical to other business names of record in Maryland. With this in mind, Maryland businesses must be more pro-active in conducting appropriate name searches prior to adopting new entity names, and should secure federal trademark and service mark registrations of valuable business names whenever possible. Scott Johnson is a principal and Chad Stamm formerly an associate in the Baltimore office of Ober|Kaler's Intellectual Property Group. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia
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