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CALIFORNIA CORPORATE & SECURITIES LAW

Incorporating Under A Disparaging Name

In Matal v. Tam, 2017 U.S. LEXIS 3872 (June 19, 2017), the U.S. Supreme Court found the “disparagement clause” of the Lanham Act violates the Free Speech Clause of the First Amendment.  The “disparagement clause” prohibits the registration of trademarks that may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead.” 15 U. S. C. § 1052(a).  The government unsuccessfully tried to defend the “disparagement clause” on the basis that (1) that trademarks are government speech, not private speech, (2) that trademarks are a form of government subsidy, and (3) that the constitutionality of the disparagement clause should be tested under a new “government-program” doctrine.

The California legislature has not enacted a similar ban on the filing of organizational documents that disparage other persons.  Nonetheless, the Secretary of State in 2008 proposed to adopt a rule banning offensive entity names.  At the time, I objected on the grounds that the Secretary of State lacked authority to do so:

While I do not endorse the use or filing of offensive names, the proposed prohibition on offensive names violates the APA’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.

The Secretary of State did not adopt this prohibition.  In searching the Secretary of State’s on-line business entity records, I was able to find 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.  I also found a few questionable names in the SEC’s EDGAR filing system.

My comments did not raise a First Amendment objection to the Secretary of State’s proposed ban.  Nonetheless, in the ensuing years at least two federal district court judges have found that a corporation’s name is expressive speech protected by the First Amendment.  Kalman v. Cortes, 723 F. Supp. 2d 766, 798-99 (E.D. Pa. 2010) and Wandering Dago, Inc. v. N.Y. State Office of Gen. Servs., 992 F. Supp. 2d 102, 116 (N.D.N.Y. Jan. 15, 2014).  The decision in Matal v. Tam strongly suggests that the Supreme Court would agree.

For more on this topic, see Blasphemous Corporate Names.

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