New Companies Act rules could lead to company name disputes

A law firm suggests that Companies Act changes could lead to a wave of company name disputes as it will be easier for businesses to challenge name "squatters".

“Brand squatting” is where company names are registered opportunistically and then often sold back to the “rightful” owner. Unlike the process of registering business domain names, there has previously been no process for brand owners to challenge the registration of company names.

Under the new law, company names may be subject to a forced change on the grounds that their names are the same as or similar to those already in use as a brand name and they have been registered in bad faith. A new statutory body called the Company Names Adjudicator is being established as part of the Act, which will oversee challenges to registered company names from October 1 onwards.

The legislation applies to company names that have already been registered as well as future registrations, so it could lead to a surge of new disputes as brand owners retrospectively make claims against opportunistic registrations, says law firm McGrigors LLP.

The legislative changes arose as it became apparent that individuals and companies had registered company names with the sole intention of selling them on to the brand owner, or as an aggressive competitive move to prevent a brand owner from being able to register that brand as a company name.

The practice of registering company names with a view to selling them on at profit has gone on for some time and, unlike the similar practice of registering domain names to sell them on for profit (cyber squatting) there has previously been no process open to brand owners to challenge the company name registration.

In one well-reported case, Welsh postman Duncan MacDonald allegedly made a profitable sideline in registering company names for £20 at Companies House, and then selling them on to the companies that wanted them for hundreds or even thousands of pounds.

From October, companies will have the option of bringing a complaint to the Companies Name Adjudicator.

The Company Names Adjudicator will decide whether company names which are not used in the course of trade have been registered to capitalise on existing brands. The Adjudicator will decide upon complaints from owners of existing brands who feel third parties are capitalising on their brand name in bad faith by registering it as a company name. It will have the power to force companies to change names and pay the costs of the challenging company. Brand owners will be able to present challenges from 1st October 2008.