Starting an enterprise and building its reputation requires an investment of time, money and opportunities. No person who makes this investment plans to lose it. However, by not paying close attention to the legal issues surrounding the naming of an enterprise and the protection of proprietary rights arising from it, the likelihood of failure to realize on that investment is significantly increased. Early diligence regarding naming is a wise investment. The objective is to carve out a strong identity for an enterprise without risking claims that third party rights have been infringed.
Many consider the naming of an enterprise to be simply a matter of personal preference and, where required, the addition of status identifiers such as “Ltd.” or “Inc.”. However, the legal issues surrounding the naming of any enterprise – whether formed as a for-profit corporation, partnership, not-for-profit society or sole proprietorship – are much more complex. These legal issues arise from both common law and statutory prohibitions on naming any enterprise in a manner which may cause confusion with another enterprise. Wherever a member of the public may reasonably but mistakenly believe that two separate enterprises are affiliated or that wares or services offered by separate enterprises originate from a common source, confusion has occurred. Liability for such confusion, along with any losses occasioned by it, falls squarely on the party with the lesser rights to the name. This party is often the one who has most recently adopted use of the name without conducting the necessary due diligence as to prior rights in the marketplace.
A recent judgment from Ontario illustrates the legal issues and risk associated with not taking care when choosing a name. A numbered company formed under Alberta’s Business Corporations Act operated a successful bakery business in Edmonton under the trade name Queen of Tarts. However, trade-mark protection over the phrase ‘Queen of Tarts’ for use in association with sale of baked goods had been granted to an individual in Ontario several years before. The Edmonton-based business operated for a number of years before the trade-mark owner discovered use of the unauthorized trade name. Upon her discovery, the trade-mark owner commenced litigation for trademark infringement as well as passing-off based on the established reputation of the bakery she once operated in Ontario. While litigation based on infringement of proprietary rights is not unusual, the outcome of this matter is worth noting. Not only did the Ontario court award damages against the Alberta corporation for trade-mark infringement and passing off, the court further found that the sole director of the Alberta corporation was jointly liable in her individual capacity for the resulting acts. The sole director’s liability was attributable to the requirement of reasonable due diligence when it came to naming her business. According to the court:
“[The sole director] either directed use of the QUEEN OF TARTS name without conducting preliminary searches to locate any potential conflicts (and therefore engaged in willful and knowing pursuit of conduct that was likely to constitute infringement and/or passing off) or else [the sole director] did conduct preliminary searches to locate any potential conflicts, but chose to ignore those search results and engage in conduct that was likely to constitute passing off and/or infringement and therefore reflected an indifference to the risk of infringement and/or passing off.”
The legal standard applied by the court to find the sole director jointly liable for infringement and passing off was the objective standard or test of ‘reasonableness’. Liability did not flow from what this director knew but what she ought to have known as a prudent business person. Further, liability for infringement and passing-off did not arise simply because a registered trade-mark was in play. Both statutory and common law principles provide protection against confusion between registered trade names, unregistered trade names, partnership names and trade-marks (regardless of whether such trade-marks are registered or unregistered).
When it comes to choosing a name for an enterprise, it may seem unreasonable to expect any person to know enough about the current marketplace (whether that marketplace is local or international) to satisfy the reasonableness standard of what ought to be known about prior name rights. This is where targeted legal advice is so helpful. Knowledgeable advice regarding the meaning of confusion, how to avoid it and how to build a unique presence for any enterprise is key to future success. More than conducting preliminary searches, targeted legal advice may offer insight into strategies for avoiding infringement while still deciding on a preferred name. Most importantly, name protection through trade-mark registration or the enforcement of one’s own common law name rights is open to any person who has effectively managed these legal issues at the early stages of enterprise formation.
Whether it is due to the unprecedented flow of information via the world wide web or the increasing willingness to litigate proprietary rights, those who hold rights to names are more watchful than ever for the possibility of infringement. While the choice of a name seems inconsequential in the overall effort to launch a new enterprise, it may just be a key component to overall success.