Article by Mr Mark Ingber and Mr David Beslow

 

One of the most common duties performed by an attorney for a client is a Corporate name clearance. What attorneys do not know, however, is that a corporate name clearance alone is not enough to protect clients from potentially significant liability. Acceptance by the New Jersey Secretary of State of your client’s business name as a corporate name will not give that corporation the right to use their corporate name in commerce, when faced with the superior trademark rights of prior users of the name. Federal trademark rights are not superseded by the acceptance of registration by the Secretary of State1, which does not provide clearance for trademark or service marks, nor does it assess the risk factor associated with such use. Only an independent trademark search will look for the rights of prior trademark users, and may provide an early indication of whether your client’s proposed corporate name will create a conflict. Proceeding without a trademark search may even expose an attorney to a possible malpractice suit.2

Acceptance of Your Client’s Corporate Name by the New Jersey Secretary of State Alone May Not Protect It From Liability

The rationale behind conducting a trademark search is very simple. Just because the New Jersey Secretary of State accepts a corporate name, does not mean that a company is allowed to use that name in business to identify products or services. While the New Jersey Secretary of State will search her own state register of corporations and, in some instances, the list of corporations qualified to do business in that state, it operates solely from its own state records, and not those of any other states, regardless of proximity. Even if other states are researched, international corporations are rarely, if ever examined. The New Jersey Secretary of State does not clear names for trademark or service mark use, nor does she evaluate or assess the risk associated with such use. In fact, the "vast majority of courts have stated that the acceptance of a corporate name by a state agency will be given ‘no judicial weight at all’ in litigation over rights to the name."3 Therefore, a bona fide trademark search will help address the issues left unexamined by a corporate name clearance.

The paramount trademark rights of prior users of the name are founded in early and longstanding common law. These rights are not outweighed by any acceptance of registration by an individual Secretary of State. A "state does not pass upon the legality of a corporate name by merely permitting incorporation under that name."4 The fact that a Secretary of State accepts a name without a completed trademark search could lull both you and your client into a false sense of security. This concept is codified in New Jersey law, N.J.S.A. 14A: 2-2:

"The filing in the office of the Secretary of State of the certificate of incorporation of a domestic corporation or the issuance by the Secretary of State of a certificate to a foreign corporation authorizing it to transact business in this State shall not preclude an action by this State to enjoin a violation of this section or any action by a person adversely affected to enjoin such violation or the use of a corporate name in violation of the rights of such person, whether on the principles of unfair competition or otherwise. The court in any action may grant any other appropriate relief."

When Should You Conduct a Trademark Search?

The best time to do a trademark search is before actual usage, before artwork, or before label printing is effected. As a company comes up with new ideas for products and their respective trademarks, counsel should review them as to availability of a particular mark for a particular product. Intellectual property attorneys can provide a complete analysis of Trademark Office as well as state and common law records within days. A deep, analytical trademark search will look for synonyms, phonetic equivalents, alternative spellings, anagrams (rearrangements of letters) and other similarities that may create a potential conflict. It’s essential to have this deeper search performed if you want to make sure your client’s business name or mark isn’t likely to be challenged as being confusingly similar to, or evocative of, an existing name or mark.

Furthermore, it will be much less expensive for your client to select a new name at its embryonic stage, rather than being forced to change its mark 2 or 3 years into developing the goodwill in its name, after it has a received a "Cease and Desist" letter from a prior trademark user. Accordingly, before recommending to your client that she begin using the mark on her product or registering it, a trademark search should be performed by a trademark attorney to determine whether the mark can be used and to consider registering the mark with the U.S. Patent and Trademark ("U.S.P.T.O") Office.

While Federal registration is not necessary for trademark protection, registration does provide many advantages including:

  • The filing date of the application is a constructive date of first use of the mark in commerce (this gives registrant nationwide priority as of that date, except as to certain prior users or prior applicants);
  • The right to sue in Federal court for trademark infringement; and
  • Prima facia evidence of the validity of the registration, registrant’s ownership of the mark and of registrant’s exclusive right to use the mark in commerce in connection with the goods or services specified in the certificates.

CAVEAT: Even Trademark Searches are Imperfect

Even a thorough trademark search completed by a highly competent intellectual property attorney does not guarantee that a lawsuit will not arise in the future. A search is not a definitive answer and only provides clues that must be examined and investigated. The fact that searches do not produce definitive answers is difficult for the trademark searcher to explain. Most of us would prefer to operate from definitive answers, not judgements based upon subjective evaluation of disputable clues. Regrettably, the latter is all that is available when reviewing a trademark search. No amount of searching can assure that all common law usages have been found. Not even a direct investigation of a company that supposedly shows that a mark is no longer used, can ensure that the mark is not in fact not still being used. Incorrect information could have been given to the investigator, inadvertently or deliberately, by phone or in person. Most companies do not have systems designed to assist a third party search investigator.

Conclusion

In the end, while a trademark search is not a guarantee, it is still the best way for your client to avoid a trademark infringement suit, and for you to avoid a malpractice claim. The cost of such a procedure is relatively minimal (usually less than a $1,000), and the risk cost of only conducting a corporate name clearance is very high. Trademark searches provide security for both you and your client, and should only be handled by a reputable trademark attorney.

FOOTNOTES

  1. N.J.S.A. 14A.2-2
  2. It is negligent not to conduct a trademark search prior to adopting a name. Electronic Communications, Inc. v. Electronic Components for Industry Co., 308 F. Supp. 267 (E.D. Mo. 1969), aff’d 443 F.2d 487 (8th Cir.), cert. denied 404 U.S. 833 (1971).
  3. J.T. McCarthy, McCarthy on Trademarks and Unfair Competition, §9:8 (4th ed. 2000).
  4. Hulbert Oil and Grease Co. v. Hulbert Oil and Grease Co., 371 F2d 251 (7th Cir. 1966), cert denied, 386 U.S. 1032 (1967).

 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.