Request By:
Octavia B. Wilkins, Esq.
Stites, McElwain & Fowler
3400 First National Tower
Louisville, Kentucky 40202
Opinion
Opinion By: Robert F. Stephens, Esq., Attorney General; Mark F. Armstrong, Esq., Assistant Attorney General
We are in receipt of your letter in which you ask our opinion of whether the existence of a corporation whose name consists of terms which are purely descriptive of its business activities (hereinafter referred to as "generic terms") precludes the inclusion of those terms in the name of another corporation. The facts upon which your question arises are as follows:
There is in existence a domestic corporation whose name consists of only generic terms. Your client, a foreign corporation, has applied under KRS 271A.540 for a Certificate of Authority to do business under its corporate name which consists of the same generic terms and an additional non-generic term. The Secretary of State has refused to issue the certificate pursuant to his determination that the corporate name of your client is deceptively similar to the name of an existing domestic corporation in violation of KRS 271A.530(3). You offer the rather persuasive argument that a corporate name consisting of generic terms cannot preclude the inclusion of these generic terms in another corporate name under the rule of Burnside Veneer Corp. v. New Burnside Veneer Co., Ky., 247 S.W.2d 524 (1952) despite their apparent similarity.
Although your client is a foreign corporation and the issue is properly decided under KRS 271A.530, the cases which apply involve domestic corporations under KRS 271A.040. Because the language of KRS 271A.040 and 271A.530 is identical, we will discuss the issue in terms of KRS 271A.040 with the understanding that our construction of it applies also to KRS 271A.530, Commonwealth v. H. E. Pogue Distillery Co., 285 Ky. 745, 149 S.W.2d 508 (1941).
In the Burnside Veneer case, supra, the Burnside Veneer Corporation sought to enjoin the use by another corporation of the name of New Burnside Veneer Company. The ground it alleged was that the latter name was deceptively similar to its name in violation of 1946 Ky. Acts 381, 384-85, codified, KRS 271.045 (1953), (repealed 1972) which provided, in part, ". . . [T]he corporate name shall not be the same as, or deceptively similar to, the name of any other domestic [or qualified foreign] corporation . . . ."
The Court held that this statutory provision did not create an exclusive right to geographic terms. Rather, the Court held the statute did not extend protection to corporate names beyond the common-law rule set forth in City of Indian Hills v. Indian Hills Development Co., 310 Ky. 104, 219 S.W.2d 776 (1949); namely, that there is no protectable interest in geographic names. In effect, the Court held there to be an unwritten common-law exception to the statute regarding the exclusive right to geographic corporate names.
In 1972, the present provision relating to corporate names was adopted. This statute, KRS 271A.040(1)(c), uses the precise language of the prior statute; i.e., that a corporate name, ". . . shall not be the same as, or deceptively similar to, the name of any domestic [or qualified foreign] corporation . . . ." Ordinarily, when the legislature re-enacts a statute using the same language as the prior statute, the judicial interpretation given to the prior statute applies with equal force to the newly enacted statute, Brown v. City of Harroldsburg, Ky., 252 S.W.2d 44, 45 (1952).
Thus, it is a substantial argument to suggest that the rule of the Burnside Veneer case, supra, although interpreting the prior statute, applies to the present statute. The rule of the Burnside case, supra, was directed to the preemption of geographic names under the statute and the Court's discussion of the preemptive effect on generic names, as in the instant situation, was only dicta. Nevertheless, the reasons for implying the common-law exception to geographic names apply equally to generic names, i.e., the preemption of generic terms would unduly interfere with the necessary or proper use of them by others in the same business and would lead to "absurd results," Burnside Veneer, supra, at 525-26.
The problem with merely stating that if generic terms were not protectable under the prior statute, they are not protectable under the present statute is twofold. First, the present statute is an enactment of the Model Bus. Corp. Act Ann. 2d § 8; and in the commentary thereto, it is stated:
"Primarily the purpose of the name statutes is the name statute is to protect the public against confusion between corporations; secondarily their purpose is to protect the corporation against unfair competition." Model Bus. Corp. Act Ann. 2d § 8 P2, Comment (West Pub. Co., 1971).
The protection of the public against confusion between corporate names was also noted in Symposium on the New Kentucky Business Corporation Act, 61 Ky.L.J. 98 (1972-73) (hereinafter referred to as "symposium" ). But for the fact that there is no evidence that the legislature considered this aspect of corporate names, see Kentucky Legislative Research Commission. Informational Bull. No. 88, Legislative Hearing: Corporation Law (1971) and the fact that the language of the subsequent statute is identical to that of the prior statute, we would be inclined to advise that the generic name exception does not apply to KRS 271A.040.
Nevertheless, the rather explicit construction of the Burnside case, supra, compels us to advise that the Comment to the Model Business Act and in the Symposium are not controlling. Once this first problem is overcome, there remains another problem.
The second problem is that we can perceive no basis for interpreting the statute; that is, statutory construction is warranted only when the statute is ambiguous, Griffin v. City of Bowling Green, Ky., 458 S.W.2d 456 (1970). KRS 271A.040 plainly expresses the legislative intent that corporate names not be deceptively identical; and this plain language, which admits of no exception, must control, Gateway Construction Co. v. Wallbaum, Ky., 356 S.W.2d 247 (1962); and there is a line of cases which hold that the corporate name statute is to be given literal application, see Note, Corporations-Effect of Statutes on Similarity of Corporate Names, 44 Ky.L.J. 439, 442-44 (1955-56) (hereinafter cited as "Note"). Kentucky, however, does not follow these cases. Further, the possibility that Kentucky would join those jurisdictions literally applying corporate name statutes appears foreclosed by the holding of Galt House, Inc. v. Home Supply Company, Ky., 483 S.W.2d 107 (1972).
In the Galt House case, supra, the plaintiff-appellant sought to enjoin the defendant-appellee from doing business under the assumed name of Galt House because that name was identical with its corporate name. The trial court declined to issue the injunction; and, on appeal, the plaintiff-appellant argued that under the rule of Drugs Consolidated v. Drug Incorporated, 16 Del. Ch. 240, 144 A. 656 (1929), its corporate name was entitled to protection without regard to whether it actually used the name in its business. The Court squarely rejected this rule, Galt House, Inc., supra, at 110-111. This rejection is significant because the Drugs Consolidated case, supra, is a leading case representing the literal application of corporate name statutes, see Note, supra, at 443.
The Galt House case may be distinguished from the situation presented by your question. For example, the Court's ultimate holding was that the plaintiff did not have standing to complain of the use of a name deceptively similar to its corporate name, see Galt House, supra, at 111-112. The statute, KRS 271A.545(2), specifically gives the Secretary of State authority to review the application for a certificate of authority for conformity to the law, e.g., whether the applicant corporation's name is deceptively similar to an existent corporation's name.
The Court in the Galt House case, supra, did, however, also hold that the corporate name statutes contain the common-law rule regarding the exclusive use of generic terms. Although we are left with the nagging suspicion that the case was result oriented, compare State Racing Commission v. Latonia Agricultural Ass'n, 136 Ky. 173, 123 S.W. 681 (1909), it is nevertheless our opinion that if this situation were in litigation, the Court would adhere to its past views and hold that the corporate name statute KRS 271A.040, does not give a corporation the exclusive use of generic terms upon the mere fact that they are included in its corporate name, compare 6 Fletcher Cyc. Corp. (Perm. Ed.) § 2416 with Op.Cit. § 2423, at 36-43.
Summary: we are of the opinion that it is not unlawful for the Secretary of State to issue a certificate of authority to your client despite the apparent similarity between its corporate name and the name of an existing corporation because, under the case law herein discussed, supra, there is an unwritten, common-law exception to the statutes, KRS 271A.040 and 271A.530, which allows the use of identical generic terms in corporate names.