Regardless of the size of the business, a company may be concerned that their goodwill may be damaged by the existence of confusingly similar company names as the general public may not be able to differentiate between companies with similar names, in particular, those incorporated by bad faith traders with an intention to ride on the goodwill and reputation of others.
Remedy: Claim for Trademark Infringement and Passing-off
If the shadow company has been incorporated for more than 12 months, a company can commence trade mark infringement and/or passing-off action against the companies with confusingly similar names for an injunction to restrain the latter from using the names. Upon being served with the injunction order, the Companies Registry would direct the shadow companies to change their names. If the latter fail to change their names in accordance with the direction, the Registry is empowered to replace the name of the shadow company with its company registration number.
It is noteworthy that recently the Court of First Instance in the case of Power Dekor (Hong Kong) Ltd v Power Dekor Group Co Ltd (HCA 1139/2013) expressed particular concern regarding the use of shadow companies to confuse customers. Zervos J in giving his judgement opined that despite the fact that the problem of shadow companies has raised concern for some time, the Companies (Amendment) Ordinance 2010 only empowered the Registrar of Companies with the power to direct a shadow company to change its name pursuant to a court order and disallow companies to register with a name which is the same as a name in relation to which a direction has previously been issued.
These measures, according to Zervos J, “do not go far enough and serious consideration should be given to enacting provisions that give the Registrar of Companies, in the appropriate circumstances, far more effective measures, including the power not to register a company name or to deregister a company with a name that is the “same as or too like” another”.
After all, the problem of the large number of shadow companies, as spotted by Zervos J, stems from the fact that the Registrar of Companies will allow a name of a new company if it is not entirely identical with another existing registered company, despite the existence of very similar, yet not identical, company names.
Although Zervos J in his judgement directed that the judgement be referred to the Registrar of Companies, it is not certain whether the Registrar would step up to tackle the longstanding problem in view of policy and costs implications.
Prevention: Avoid incorporating
Not surprisingly, the Companies Registry remains a passive role in the prevention of incorporation of shadow companies. The New Guideline reiterates the position that registration of a company name does not mean that the name is protected, neither does it mean that such a name is not liable to challenge by others, and also that “The registration of a company name with the Companies Registry does not confer any trademark rights or any other intellectual property rights in respect of the company name or any part thereof. Applicants should, therefore, ensure that they do not adopt a name which resembles a registered trademark or is “too like” the name of another company.”
The New Guideline also contained what criteria the Companies Registry would take into account in forming an opinion that two names are too like. The following examples are supplied by us for illustration:
1. Names which are the same – for example, “KWUN TONG ENGINEERING LIMITED” would be considered “too like” “KWUN TONG ENGINEERING COMPANY LIMITED”, .
Despite the power given to the Registrar of Companies, currently it has not taken a proactive approach in exercising the power conferred to him to direct shadow companies to change their names pursuant to s.22(2) of the Companies Ordinance (or s.108 of the new Companies Ordinance upon it being effective in the near future). The task of clearing existing shadow companies is currently shared by the Companies Registry and the Court. If the Companies Registry is going to take up this task, it would not be an easy one, particularly in light of the large number of shadow companies already incorporated and existing on the register.
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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Published by ONC Lawyers © 2014