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CALIFORNIA CORPORATE & SECURITIES LAW

Can The Secretary Of State Reject Disparaging Business Entity Names?

Section 2(a) of the Lanham Act bars the Patent and Trademark Office from registering scandalous, immoral, or disparaging marks. 15 U.S.C. § 1052(a).  However, the United States Court of Appeals for the Federal Circuit sitting en banc recently held that the disparagement provision in Section 2(a) is unconstitutional because it violates the First Amendment to the U.S. Constitution.  In re Shiao Tam, 2015 U.S. App. LEXIS 22300 (Fed. Cir. 2015).  The Court of Appeals’ holding reminded me that the California Secretary of State had once proposed regulations banning offensive business entity names:

The business entity name or assume name shall not contain any word, or combination of words, letters or numbers that create a connotation that would be considered offensive by broad community standards. “Offensive”shall include swear words or terms considered obscene or repulsive.

Proposed text of 2 CCR § 21007(c).  I commented that the Secretary of State lacked statutory authority to promulgate a ban on offensive corporate names:

While I do not endorse the use or filing of offensive names, the proposed prohibition on offensive names violates the APA’s [Administrative Procedure Act’s] authority and consistency standards.  As discussed above, the Secretary of State’s authority to adopt regulations is implied rather than express.   Prohibiting the filing of offensive names does not further the purposes of the statutes.  These are to prevent the filing of names that are likely to mislead the public or that are deceptively similar.  An offensive name may not be misleading and it may be unique.  Accordingly, it is irrelevant to these purposes whether the proposed name is offensive.  Furthermore, none of the statutes cited as authority purports to require or authorize the Secretary of State to refuse to file a name on the basis that the name is offensive.  Thus, I believe that authority to adopt this regulation cannot be fairly implied from the statutes cited as authority.

Letter to Senior Staff Counsel Todd Vlaanderen dated December 8, 2008.  I did not raise the constitutional question because I believed that the Secretary of State lacked the authority to adopt the regulation.  In response to my comment, the Secretary of State removed the proposed ban on offensive names from the final regulations.  The Secretary of State’s current Business Entity Name Regulations are available here.

A quick search of the Secretary of State’s business entity on-line records reveals that the Secretary of State has permitted the filing of organizational documents for numerous entities with potentially offensive names.   I won’t cite particular examples, but I was able to find business entity names that many would consider to include derogatory ethnic terms and crude sexual references.

Attentive readers may note that I’ve subtly shifted ground from disparaging marks to offensive corporate names.  The Court of Appeals’ holding in In re Shiao Tam is limited to the constitutionality of the disparagement provision.  The Court left for another day the constitutionality of the exclusions of immoral and scandalous marks.  As noted above, the Secretary of State had proposed to ban “offensive” names.  Is there any difference between a “disparagement” and “offense”?  To disparage means to belittle or degrade while offend means to antagonize.  However, anything that degrades is likely to offend as well.

 

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