The Incestuous Love Triangle of Entity Names, Trade Names and Trade Marks - How to Avoid Being Caught With Your Pants Down (Part II)
In the first installment of this article I introduced a wide spread problem that business owners may be inadvertently susceptible to that could cause a company to loose the right to use their name in commerce, and discussed entity names. In the second installment I am going to discuss the second player in the love triangle – Trade names.
There seems to be a lot of confusion about what trade names actually are and are not. Quite simply, a trade name is an allowance by the State for a company or individual to use or display to the public a name other than its legal name. Most often this occurs with sole proprietorships. For example, if Joe Smith is operating a coffee shop as a sole proprietor and wants to operate as Mile High Coffee, he will need to file for the trade name Mile High Coffee, because he is operating by another name than his legal name which would be Joe Smith. Corporations. LLC’s and partnerships can also operate under trade names. For example a company whose legal name is Dreams Unlimited, Inc. would need to file a trade name to hold itself out to the public as Wilderness Adventures. A lot of times companies will file trade names in order to have a more consumer friendly appearance, or to be able to advertise without having to include the Inc., Corp, LTD., or LLC designators. Additionally, trade names are used extensively with franchises where the franchisee creates a company to own and operate the business, but then does business under the franchised name of Subway, McDonalds, or Burger King, etc.
Basically, a trade name is a way for consumers to find out who they are doing business with. If I have formed a corporation called XYZ Corp. but do business as ABC Unlimited, the State wants to have a paper trail so consumers, creditors, or other interested parties to easily find out who ABC Unlimited is. Essentially a trade name certificate is a record keeping tool.
So, now that we have taken a look at what trade names actually do, lets take a look at what they do not do. First and foremost – TRADE NAMES DO NOT GRANT AN EXCLUSIVE RIGHT TO USE THE NAME. Let me say it again – trade names do not grant an exclusive right to use the name. In fact, when applying for a trade name there usually is no examination of whether or not anyone else is using the name. Therefore it is quite possible that the State has issued trade name certificates to any number of different individuals or companies. Since it is essentially a record keeping tool, the State doesn’t really care too much about more than one entity using the same trade name. And while a trade name is an authorization to use a certain name in commerce, it does not prevent another company or individual that has a better right to use the name in commerce (i.e. trademark rights) from prohibiting you from using your trade name. Additionally, unless you have a superior right to use a certain name (once again through trade mark rights) you cannot prevent another company from using the name just based on the fact that you have an identical trade name.
So now, the big question is if trademark rights can trump entity names and trade names, what are trademarks, how do they arise, and how can business owners protect themselves?
The answers to those questions and more will be in Part III of our series.