For many entrepreneurs, the starting point in setting up a new business is to choose a name for the new business and to register a company with that name. The first step of the registration process of a company is to select, in order of preference, a list of names for consideration and approval by the Commissioner of Companies who oversees the registration of companies in South Africa.
Arising from the name reservation process, there often is a misperception that the approval of a particular name as a company’s registered name means that the new company has the exclusive right to use its chosen name and to prevent others from using the same or confusingly similar names in the trade. It is also often assumed that the fact that a name is approved for registration as a company means that the use of that name is lawful and will not infringe the rights of others.
Although the Commissioner of Companies, when approving a company’s name, considers other company names on the register of companies, the Commissioner ordinarily does not cross-check the register of trade marks or conduct a check of names in use in the trade to establish if there is a conflict between a proposed company name and the trade mark rights or common law rights that another business may have in a trade mark or trading name.
A result of misperceptions about the name approval process of a company’s name is that an entrepreneur may invest a significant portion of its start-up capital on branding only to be faced with claims of trade mark infringement in the event that it starts trading, or claims of passing-off if there already is an established business in the same field of trade with a reputation in a confusingly similar name. There is also a procedure in terms of the Companies Act, 2008, in terms of which a person with an interest in a name may lodge an objection to a new company’s name. An objection may be lodged on various grounds, including that a company’s name is confusingly similar to a registered trade mark of the objector or that the new company’s name is likely to cause confusion with the name of another business that has common law rights in a name.
To avoid possible liabilities and to reduce the risk of having to engage in time-consuming and expensive rebranding exercises, it is advisable when choosing a name for a new company for entrepreneurs to:-
(1) research names that are already in use in the trade in the same field of business by cross-checking business directories and search engines on the internet; and
(2) arrange for a search of the register of trade marks to establish the risk of the proposed name interfering with the rights of an owner of a registered trade mark.
In addition, to secure the rights in a new company’s name, it is advisable to consider filing the company’s name as a trade mark in terms of the Trade Marks Act. There are a number of benefits to obtaining registration of a name as a trade mark. For example, in terms of the infringement provisions of the Trade Marks Act, the owner of a registered trade mark has the right to prevent others from making unauthorised use, in the course of trade, of marks that are identical or confusingly similar to the registered trade mark in relation to goods or services that are the same as, or similar to those goods or services for which registration is obtained. As a business grows, it becomes the focus of attention to competitors who may decide to use confusingly similar names in the trade to ride on the back of another business’ success.
In addition, a trade mark can acquire a significant value as a financial asset to a new company as it starts to grow. The reputation in a trade mark that is used in the course of trade subsists in its registered proprietor. As a business expands, issues such as possible licensing and franchising may become important and the value of a name can be a significant source of royalties and franchise fees.
In summary, an intellectual property strategy, including a branding strategy, should commence at the very beginning of the start-up phase of a business, namely the choice of a company’s name. Prudent steps early on could avoid hiccups such as having to re-brand or change a name and obtaining early protection could deter copycats and create brand value for a business.
By Christophe van Zyl, Trade Mark Attorney, Von Seidels - Intellectual Property Attorneys