Title: Two Way Radio Serv. v. Two Way Radio, Etc.

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

370 S.E.2d 408 (1988) 322 N.C. 809 TWO WAY RADIO SERVICE, INC., a North Carolina corporation v. TWO WAY RADIO OF CAROLINA, INC., a North Carolina corporation. No. 29PA88. Supreme Court of North Carolina. July 28, 1988. *409 Michael W. Taylor, Albemarle, for plaintiff-appellee. Weinstein and Sturges, P.A. by Michel C. Daisley and Hugh B. Campbell, Jr., Charlotte, for defendant-appellant. WHICHARD, Justice. The issue is whether the statutory prohibition against "deceptively similar" corporate names, N.C.G.S. § 55-12(c) (1982), extinguishes the common law rule proscribing exclusive appropriation of the right to use a "descriptive phrase" in a trade name. We hold that the common law rule survives. Both plaintiff and defendant engage in the business of operating, selling, leasing, and maintaining radio-telephonic communication equipment. Both do business in Mecklenburg and Stanly counties. Plaintiff began doing business under the name "Two Way Radio Service" in 1959 and incorporated under that name in 1961. Defendant has done business under the names "Two Way Radio of Charlotte" and "Two Way Radio of Carolina" since 1956. In 1965 defendant incorporated under the name "Two Way Radio of Carolina, Inc." Plaintiff brought this action seeking to enjoin defendant from doing business under the name "Two Way Radio of Carolina, Inc." The complaint alleges that "[d]efendant's name is deceptively similar to plaintiff's name in violation of GS 55-12(c)." It further alleges: Defendant answered, denying that the names are deceptively similar. It admitted that it "has listed its name and telephone number in various telephone directories including *410 the AlbemarleBadinNew LondonOakboro Telephone Directory," but denied that this resulted in calls intended for plaintiff being mistakenly made to defendant or in inconvenience and loss to plaintiff. It also denied that plaintiff will suffer irreparable injury, loss, and damage if defendant continues to do business under its present name. Plaintiff moved for summary judgment and supported its motion with an affidavit from Raymond J. Miller, its president since its incorporation in 1961. The affidavit swore to the truth of the allegations of the complaint, then stated: Plaintiff later filed a further affidavit from Miller in which Miller averred that plaintiff had received a check from Stanly County, payable to plaintiff, which was intended for defendant. He further averred that a customer had sent a check, intended for plaintiff, to defendant. Finally, he averred that a tabulation sheet for bids "on the Stanly County fire system communications" contained markings indicating confusion between the two firms on the part of people in Stanly County. Defendant initially filed a responsive document labeled "motion," in which it "moved" that plaintiff's motion for summary judgment be denied on the ground that "`Two-Way Radio' is a generic term and is not subject to the provisions of N.C.G.S. Section 55-12(c)." Defendant supported its "motion" with an affidavit from its corporate secretary which averred, in pertinent part, that defendant or its predecessor has continuously used the name "Two-Way Radio" since October 1956 "in commerce in North Carolina and in Stanley [sic] County." Defendant subsequently filed its own motion for summary judgment. It again filed a supporting affidavit from its corporate secretary averring that it or its predecessor "has been continuously using the name `Two Way Radio' since October, 1956, in the Stanly County, North Carolina area." The affidavit further averred: Defendant attached to the affidavit advertisements containing language such as "2-Way Radio," "Two-Way Radios" or "Two-Way Radio Service." Plaintiff responded by filing a further affidavit from Miller, its president, in which he averred: The district court granted plaintiff's motion for summary judgment and enjoined defendant from doing business under the name Two Way Radio of Carolina, Inc., "so as to prevent reasonably intelligent and careful persons from being misled." The Court of Appeals affirmed in an unpublished opinion. It acknowledged that "`two way radio' is ... a generic, descriptive term" and that "a generic term descriptive of a type of business [cannot] be monopolized as a trade name" (citing Steak House v. Staley, 263 N.C. 199, 203, 139 S.E.2d 185, 188 (1964)). It concluded, however, that the case is not controlled by the common law of unfair competition, but by N.C.G.S. § 55-12(c), which proscribes "deceptively similar" corporate names. N.C. G.S. § 55-12(c) (1982). The court reached this conclusion by construing N.C.G.S. § 55-12(c) in light of administrative guidelines published by the Secretary of State, which would now prohibit allowance of two corporate names as similar as plaintiff's and defendant's (citing N.C.Admin.Code tit. 18, r. 4.0503(a), (b) (Sept. 1987)). It determined that pursuant to these guidelines the names were deceptively similar, and it held that the injunction thus was properly granted. On 9 March 1988 we allowed defendant's petition for discretionary review. We now reverse. As in Steak House, "[w]e are concerned here with a trade name." Steak House, 263 N.C. at 201, 139 S.E.2d at 187. In Steak House, we set forth the common law regarding exclusive appropriation in trade names of generic or generally descriptive[1] words and phrases: Id. While cases applying this rule in the context of corporate names are rare, applicability of the rule in this context is generally recognized. See Annot., "Protection of Business or Trading Corporation Against Use of Same or Similar Name by Another Corporation," 115 A.L.R. 1241, 1244 (1938); Umpqua Broccoli Exch. v. Um-Qua Valley Broccoli Growers, 117 Or. 678, 685-87, 245 P. 324, 327 (1926). A well-established exception to this rule applies when the descriptive phrase in question has acquired "secondary meaning." As stated in Steak House v. Staley: 263 N.C. at 201-02, 139 S.E.2d at 187. Here, however, plaintiff neither alleges, nor forecasts evidence tending to prove, that the phrase "two way radio" has acquired a secondary meaninga meaning signifying a producer rather than a product. Id. We thus are concerned only with the rule, not the exception. The phrase "two way radio" clearly is "literally descriptive" of the product and service provided by the litigants; it is "no more original than it is unusual or fanciful." Id. at 202, 139 S.E.2d at 188. The advertisements from trade magazines attached to the affidavit of defendant's corporate secretary demonstrate, without contradiction in the record, the commonness of use of the phrase "two way radio" or "2-way radio" in the names of businesses operating around the country. Indeed, plaintiff does not denyand the Court of Appeals concededthat the phrase is generally descriptive. Nothing else appearing, then, the common law rule applies, and plaintiff may not appropriate the phrase to its exclusive use. Id. at 201, 139 S.E.2d at 187. Plaintiff contends, however, that N.C.G.S. § 55-12 governs to the exclusion of the common law of trade names. This statute provides: "The corporate name shall not ... be the same as, or deceptively similar to, the name of any domestic corporation or of any foreign corporation authorized to transact business in this State...." N.C.G.S. § 55-12(c) (1982). It also provides for enforcement of the foregoing provision by injunction: "The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State." N.C.G.S. § 55-12(j) (1982). Thus, the issue is whether these statutes supersede the common law of trade names, or whether, instead, the common law of trade names survives to inform the interpretation and application of these statutes. We hold the latter. Several commentators have indicated that disputes concerning corporate names should be resolved in light of common law trademark or trade name principles. Russell Robinson states: R. Robinson, North Carolina Corporation Law and Practice § 4-1, at 52 (3d ed. 1983) (footnotes omitted) (emphasis added). An A.L.R. annotation reflects the general law: Annot., "Protection of Business or Trading Corporation Against Use of Same or Similar Name by Another Corporation," 66 A.L.R. 948, 950 (1930). Speaking directly to the issue here, the annotation notes that "[u]nder the English statute [prohibiting similar names], after the companies have once been registered, the statute no longer applies, and an action subsequently brought, to enjoin the use of the name of one of the companies, is governed by common-law rules." Id. at 951 (emphasis added). Similarly, a leading treatise states that "[p]rotection against the confusing use of commercial and corporate names is afforded upon the same basic principles as apply to trademarks in general," and this protection is circumscribed by "the same limitations and conditions as are trademarks," including the rules applicable to descriptive names. 1 J. McCarthy, Trademarks and Unfair Competition § 9:1, at 300-01 (2d ed. 1984 & Supp.1987). Our own statutory scheme governing the issuance of corporate names contains a provision which suggests that the General Assembly did not intend to preempt the common law of trademarks and trade names. This provision states: N.C.G.S. § 55-12(k) (1982) (emphasis added). While this provision only prohibits a corporation from using the issuance of its charter as a shield to defend against violations of trademark law, it would seemin spirit and intentto prohibit plaintiff's use of its charter as a sword to pierce defendant's common law right to nonexclusive use of a generally descriptive phrase in a trade name. Finally, two prior decisions of this Court have employed common law trademark or trade name principles in adjudicating the rights to corporate names. First, we employed trademark principles in Bingham School v. Gray, 122 N.C. 699, 30 S.E. 304 (1898), a case decided prior to enactment of N.C.G.S. § 55-12(c), in holding that the act of incorporating did not create an exclusive right to the use of a surname. Second, in Tobacco Co. v. Tobacco Co., 145 N.C. 367, 59 S.E. 123 (1907), we stated: Id. at 374, 59 S.E. at 126 (quoting Holmes v. Holmes, 37 Conn. 278, 9 Am.Rep. 324 (1870)) (emphasis added). While not dispositive, the foregoing authorities are instructive; in light thereof, and in the absence of clear legislative guidance to the contrary, we conclude that the N.C.G.S. § 55-12(c) proscription against deceptively similar corporate names remains circumscribed by the salutary common law principle that generally descriptive phrases may not be exclusively appropriated in a trade name. Steak House v. Staley, 263 N.C. 199, 139 S.E.2d 185. The trial court thus erred in enjoining defendant from doing business under a name which included the generally descriptive phrase "two way radio," and the Court of Appeals erred in failing to reverse the trial court. By choosing a generally descriptive phrase as a part of its corporate name, plaintiff assumed the risk that some consumers might confuse *414 it with other producers. "[O]ne competitor will not be permitted to impoverish the language of commerce by preventing his fellows from fairly describing their own goods." Bada Co. v. Montgomery Ward & Co., 426 F.2d 8, 11 (9th Cir.1970), cert. denied, 400 U.S. 916, 91 S. Ct. 174, 27 L. Ed. 2d 155 (1970). We thus hold that plaintiff did not, by its prior incorporation under a name that included the generally descriptive phrase "two way radio," acquire a right to the use of that phrase in its corporate name to the exclusion of that right in defendant and others subsequently incorporated. For the foregoing reasons, the decision of the Court of Appeals upholding summary judgment for plaintiff is reversed. The case is remanded to the Court of Appeals for further remand to the District Court, Stanly County, for entry of summary judgment for defendant. REVERSED AND REMANDED. [1] Modern trademark law distinguishes between generic and descriptive terms. See 1 J. McCarthy, Trademarks and Unfair Competition § 11.1 (2d ed. 1984 & Supp.1987). Because we hold that the phrase "two way radio" cannot be exclusively appropriated because it is generally descriptive, we need not decide whether the phrase meets the more restrictive test of genericness. See id.