CSSB 93(FIN) - NAMES OF ORGANIZATIONS & BUSINESSES Number 1115 CHAIRMAN ROKEBERG announced the committee's next order of business is CSSB 93(FIN), "An Act relating to the purposes of certain businesses and corporations; relating to the names of businesses and organizations; relating to the registration under the Alaska Trademark Act of marks that resemble the name of another business or organization; and providing for an effective date." Number 1130 DAVID GRAY, Legislative Assistant to Senator Jerry Mackie, Alaska State Legislature, came forward to present SB 93 as aide to the Senate Labor and Commerce Standing Committee, the bill sponsor. Senate Bill 93 was introduced in response to a request from the Department of Commerce and Economic Development (DCED) to attempt to clear up a real confusion in the state's responsibility for registry or acknowledging names of the various corporations and private businesses throughout the state. The state recognizes names of different corporations and private entities in three ways. In Alaska Statutes 10.06, 10.20, 10.35, 32.11, the standard is that the name may not be the same or deceptively similar to the name of another corporation or public entity. In Alaska Statute 10.25, the guideline is that the name shall be distinct from the name of another corporation. In Alaska Statutes 10.50 and 32.05, the guideline is that the name is distinguishable on the records of the department. These three different standards distributed through the state's statutes are cause for a tremendous amount of confusion and draws the DCED into an enormous amount of controversy. MR. GRAY stated SB 93 is an attempt to establish one standard, "distinguishable on the record," which is used by most states and is recommended by the "Uniform Code Commission." He indicated a representative of the department is also present to answer technical questions. Mr. Gray explained to the newer members of the legislature that, from his experience, without something like this they would indeed receive some complaint from an irate constituent on this subject. He described the complaint could be that someone else was, in the constituent's view, taking the constituent's [business] name, or it could be that the constituent filed a name and found out someone else has that name. Mr. Gray indicated there is not much which can be done in these situations; in his experience it has been a very difficult issue to resolve to anyone satisfactorily. Number 1292 CHAIRMAN ROKEBERG asked if the committee had any questions for Mr. Gray. The chairman noted the bill's length seems to result from repeating the same thing in different sections of the statute, questioning if they were being relatively repetitive. MR. GRAY answered that is correct. There are three different standards distributed through a great deal of statute which are being reduced to one standard, "distinguishable on the record." He indicated he wished the department to describe why it wishes to have this standard, why it should be in this place, and how this might resolve the current confusion. CHAIRMAN ROKEBERG questioned if there has been any testimony from businesses providing an example this could correct. MR. GRAY replied he does not have any direct testimony from businesses on record. However, there has certainly been no objection. CHAIRMAN ROKEBERG indicated he is thinking of the Alaska State Chamber of Commerce, the National Federation of Independent Business (NFIB), et cetera. Number 1373 REPRESENTATIVE HALCRO pointed to the Senate Finance Standing Committee minutes of April 9, 1999, in the bill packet which mention the case of "Wild Iris" and the "Wild Iris Cafe" provided by Dawn Williams of the DCED. Representative Halcro quoted, "'She said the department felt they were different but "Wild Iris" did not. Therefore, a lawsuit was filed and the State was brought into the suit.'" MR. GRAY indicated the Senate Finance changes were mainly technical amendments. The language in SB 93 regarding the adoption of regulations to "interpret or implement" a subsection, et cetera, was changed to "implement". Mr. Gray indicated this change was made in about 15 places and had been the wish of one of the Senate Finance co-chairs. Mr. Gray noted there had also been one small technical amendment requested by the department which had made eminent sense. CHAIRMAN ROKEBERG indicated the detail-oriented nature of the House Labor and Commerce Standing Committee. Number 1485 DAWN WILLIAMS, Records and Licensing Supervisor, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development, came forward. Ms. Williams stated she is the corporations supervisor for the DCED and asked for the committee's questions. CHAIRMAN ROKEBERG requested she explain the legislation. MS. WILLIAMS replied the department has corporations, limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs), nonprofit corporations, religious corporations, plus a few more. Basically, there are three standards for deciding who can have what name. Ms. Williams indicated the current standards for the limited liability companies are unfair. The department is attempting to require all entities to use one standard to determine whether or not their name is available. Additionally, this legislation would allow more entities to file with the state, either as a corporation, limited liability company, or simply as a business name. Number 1539 REPRESENTATIVE HALCRO noted it was mentioned in the Senate testimony that 25 other states have adopted this same language. He questioned if these states had solicited comments from chambers of commerce, et cetera. Representative Halcro questioned if this is a problem that exists and if that is the impetus for the legislation in other states. MS. WILLIAMS said she really does not know the answer. She would think that most states have adopted the wording through the Revised Model Business Corporation Act (RMBCA) done by the American Bar Association ["national bar association"]. Ms. Williams noted that language is "the (indisc.) must be distinguishable on the record." CHAIRMAN ROKEBERG requested Ms. Williams repeat the example of the Iris case and possibly a few others. MS. WILLIAMS answered that "The Wild Iris" was on file with the Division of Banking, Securities and Corporations as a registered business name. The division received a new registration for "Wild Iris Cafe." The division felt the names were different; it was not confused by the two names at that time. The Wild Iris decided the department was wrong and basically brought suit against the Wild Iris Cafe and against the state. Through the department, with the assistant AG [attorney general], it was decided that possibly The Wild Iris was correct, maybe there is confusion, because the two entities are in the same type of business. Ms. Williams noted she thought this is the restaurant business; she thinks one entity is in Anchorage and the other in Fairbanks. She commented she had been confused about that at the Senate Finance hearing. CHAIRMAN ROKEBERG questioned if she was no longer confused. Number 1657 MS. WILLIAMS replied she believes so. The department decided that the names were possibly confusing to the public. Unfortunately for the state, business entity conflicts should not be decided by the state - they should be decided by each individual entity. A new corporation first of all needs to make sure there is no other entity with the same name the corporation wishes to use. CHAIRMAN ROKEBERG asked how one does this. MS. WILLIAMS answered one looks in trade magazines, newspapers, business licensing, and the Division of Banking, Securities and Corporations of the DCED. She described the example of a business obtaining a business license and then attempting to register the business name with the division. In the example, Ms. Williams noted she was simply speaking of a business obtaining a business license, not a corporation, partnership, et cetera. In her example, the division already has a corporation on file with this same name and therefore will not file that business registration. However, the first business is still out there doing business under that name because it has a business license to do that. It is up to the corporation to stop that business entity from using the name. CHAIRMAN ROKEBERG questioned that the corporation would have to bring cause of action for this. MS. WILLIAMS answered in the affirmative. She described that there could be a business with a business license out there doing business on its own. A corporation starts up, picking this great name. The corporation files with the division as a corporation and the division has no other name like that on file. Two years later the corporation finds out this small entity has the same name and had it first. Ms. Williams questioned which entity has rights to the name. She said it is not up to the state to decide who has right to the name; it is up to those entities to go to court and determine that. Number 1748 REPRESENTATIVE HALCRO mentioned he knew of a restaurant called Chilly's in Anchorage on the Old Seward Highway towards Huffman which suddenly went from "Chilly's" to "Eric's (ph)." Representative Halcro noted the only thing he could think of was that "Chilly's (ph)," the national chain, came in and said "'Hey, excuse us, but you're using our name.'" He asked if the division gets involved in that type of situation where a name is trademarked or copyrighted. MS. WILLIAMS replied the division cannot get involved in that. She indicated, however, SB 93 contains a statute change regarding trademarks within the state. Ms. Williams explained no duplications are allowed with federally-registered trademarks but she indicated state trademarks extend only to the state they are registered in. She noted someone can register a trademark in Alaska that may already be registered in Washington; the division does not do any searching or anything. Ms. Williams stated, "The trademark statutes and the business name or corporate name standards don't look at each other. What we're doing with the statute change is making it so that if when somebody files trademark, we actually at our corporate database or our registered business name database and make sure that somebody's not stepping on somebody's toes within our own section, so that we can stop those problems." She noted these problems have occurred. REPRESENTATIVE CISSNA assumed because of the onus of responsibility on the business owner, that there must be numerous cases of businesses with the same name in various towns, and even in the same town. She commented her own business name is very close to another business name; it has been true for 20 years and neither business cares. Representative Cissna said she is assuming this wouldn't change that ability. Number 1861 MS. WILLIAMS answered that every business has to have a business license; business licensing does not have name statutes. Numerous businesses can have the same business license name. However, the Division of Banking, Securities and Corporations, which deals with corporations, liability companies, partnerships and registered business names, cannot have one name on file that is the same as another. It doesn't matter who has a name outside who has not registered with the division - this doesn't change anything for those people. If there is a conflict between these businesses that are outside the division, they have to settle that themselves. It is not the state's problem; it is not something that the state can determine. Ms. Williams said no other state she knows of is in the name conflict business. She commented, "They don't determine whether this person way out here and this person way out here shouldn't have the same name or not. It's when they come to register with the state that they have the problem." CHAIRMAN ROKEBERG confirmed from Ms. Williams that the business licensing is under the Division of Occupational Licensing. He indicated there has been some discussion about changing that. The chairman asked if she knew the procedure regarding using a name on a business license; he questioned if there wasn't some warning or something on the application itself. MS. WILLIAMS replied she is not sure about warnings. If a business has "Inc." [incorporated] in its business name when it files its business license, Business Licensing will send the business a small blue card informing the business it should contact the Division of Banking, Securities and Corporations. If a business has "Inc." in its name, it should be a corporation. Business Licensing also sends a blue card to inform a business that it can register its name and that it might want to check with the Division of Banking, Securities and Corporations to see if another business has a name like that. Number 1960 CHAIRMAN ROKEBERG asked how a non-corporate entity registers a name with the division. MS. WILLIAMS answered, under Section 10.35. She explained that a business can file an application with the division if it has a business license. Currently, the business can register that business name if the business's name is not the same as or deceptively similar to another name on file. CHAIRMAN ROKEBERG indicated he wondered if this applied to any type of business, mentioning sole proprietorship, partnership, LLC, LLP, et cetera. MS. WILLIAMS answered that only business names or d/b/a [doing business as] names could be registered as sole proprietorship entities. LLCs, LLPs, and all of those entities, have to file articles of incorporation or certificates of partnership. CHAIRMAN ROKEBERG noted, then, they would already be under the division's jurisdiction. However, if a sole proprietorship wanted to register a name with the Division of Banking, Securities and Corporations, they could do so. MS. WILLIAMS confirmed that is correct. CHAIRMAN ROKEBERG questioned whether a common multiple partner-type business would be required to be registered with the division. Number 2010 MS. WILLIAMS indicated this type of business would not necessarily be registered. She explained the only entities that must register with the Division of Banking, Securities and Corporations are corporations - whether nonprofit or for-profit and including religious corporations, limited liability companies, limited liability partnerships, limited partnerships, and cooperative corporations. CHAIRMAN ROKEBERG commented, then, sole proprietorships or combinations of family businesses wouldn't necessarily be registered [with the division]. MS. WILLIAMS indicated that is correct. CHAIRMAN ROKEBERG confirmed, though, these businesses could register under the business name registrations. The chairman noted the committee had received some correspondence a year or two previously from a gentleman in Juneau with a landscaping business. As the chairman recalls, a disgruntled employee of this business left and then filed the business name with the business registry, in effect almost stealing the business. The chairman indicated there was a large conflict because the owner of the business did not have the business name currently registered, lacked a business license or something. Chairman Rokeberg asked Ms. Williams if that rang a bell with her. MS. WILLIAMS replied it did, but not clearly. She commented, "Our statutes -- and this is why I say we're not in the name finding business ...." The entities have to go to court themselves to determine who has legal right to that name. The first person who registers a name with the division, whether corporate name or business registration, is the one who has it. That doesn't necessarily give the entity legal title to that name; it is up to the courts to decide who has legal right to that name. CHAIRMAN ROKEBERG indicated this is because the name could be copyrighted or trademarked in another jurisdiction, or the business might be a sole proprietorship which has had a business license for a number years but finally decided to incorporate, and wouldn't be on the registry, et cetera. MS. WILLIAMS indicated the chairman is correct. CHAIRMAN ROKEBERG noted, though, the issue here is what the courts should use in interpreting the criteria or standard for the name. He questioned which standard is being used for the registry (indisc.). Number 2123 MS. WILLIAMS answered the standard most used currently is "the same as or deceptively similar." This has been in use for years, but the "distinguishable" standard is the newest standard. It is the one most states are currently using; at least 25 states have adopted it in recent years. CHAIRMAN ROKEBERG asked, "Was it using 'deceptively similar'?" MS. WILLIAMS agreed. CHAIRMAN ROKEBERG questioned that the division believes by changing the standard, more businesses with deceptively similar names that are distinguishable on the record will be able to register, resulting in the $30,000 and progressively increasing fiscal note. He confirmed Ms. Williams agreed. The chairman asked if the division believes it will actually increase its revenue. MS. WILLIAMS answered that she personally sends out several letters a month informing businesses their names are deceptively similar to another name on file and therefore cannot be registered. The business can choose another name or does not even have to register it. With the "distinguishable" standard, the business will be able to register that name, resulting in more revenue [for the state]. Ms. Williams noted it is not a great deal of revenue, but it is a bit more. In response to the chairman's question, Ms. Williams informed the committee the fee to register a business name for five years is $25. CHAIRMAN ROKEBERG indicated in the landscaping case the name may have been registered but not renewed after five years, and thus someone else could have filed it. MS. WILLIAMS agreed. Number 2200 CHAIRMAN ROKEBERG questioned if there is anything in statute that the division should warn (indisc.) business that there is another business with a similar name, if an entity had what would formerly be considered a deceptively similar name but would now be allowed under "distinguishable on the record." MS. WILLIAMS answered there is nothing currently in statute. However, the division does inform businesses of other similar names when businesses inquire about registering their name. CHAIRMAN ROKEBERG asked if there is any regulatory or statutory requirement for the division to do this. MS. WILLIAMS replied not at this time. If the legislation passes, the division is planning adopt a policy which would include that. It would be similar to Utah's current policy. CHAIRMAN ROKEBERG questioned the length in pages in Utah's policy. MS. WILLIAMS answered that Utah's is approximately two to three pages. It encompasses a great deal, explaining what names would be available compared to names on file, et cetera. CHAIRMAN ROKEBERG asked Mr. Gray if he thought the bill sponsor would mind if the committee amended the legislation slightly to tell the division to do this. MR. GRAY replied whatever works for the division and is good government. MS. WILLIAMS indicated the division would have no objections. CHAIRMAN ROKEBERG noted the division's testimony is that it is doing this now but it does not have an obligation to do so. It seems to him the division might have an obligation - that is why it is doing it. He mentioned providing good service. Number 2279 MS. WILLIAMS thinks the division probably feels it should and therefore does so in most cases. The division would not mind having that in statute. In response to the chairman's comment about not wanting to add two or three pages, Ms. Williams indicated she thinks a statement could accomplish this purpose. CHAIRMAN ROKEBERG interjected they could put something in to the effect of implementing regulations to provide for informing the public of similar names so the public is aware there are other names out there which could be used, to avoid any conflict. The chairman asked if that would be helpful for the division. MS. WILLIAMS replied she doesn't know if it would be helpful. She thinks it would be helpful to the public and the division is there to help the public. The division is attempting to get as many corporations, entities, et cetera, to file with the state so that these entities can continue doing business. 2328 CHAIRMAN ROKEBERG called an at-ease at 4:10 p.m. The committee came back to order at 4:13 p.m. [TAPE CHANGED MANUALLY DURING THE AT-EASE] TAPE 99-50, SIDE B Number 0001 CHAIRMAN ROKEBERG commented he would like to get some more information regarding the trademarking (indisc.) in order to carry the legislation on the floor, unless it is assigned to Representative Halcro. The chairman confirmed there were no further witnesses on SB 93 and closed the public hearing. Number 0035 REPRESENTATIVE HALCRO made a motion to move CSSB 93(FIN) out of committee with the accompanying positive fiscal note and individual recommendations. There being no objection, CSSB 93(FIN) moved out of the House Labor and Commerce Standing Committee.