Developments In NC State Trademark Law

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When I last wrote about SCI North Carolina Funeral Services, LLC v. McEwen Ellington Funeral Services, Inc., Judge Murphy had entered a TRO against the Defendants for trademark infringement over their use of the McEwen name in their funeral home business. The case seemed cut and dried then, and it looked like that the Defendants had no defense to the infringement claim.

Last week, Judge Murphy entered a preliminary injunction in the same case in 2013 NCBC 11, this time over the Defendants' vigorous defense. The second time around was a much closer call.

The case involves the McEwen name, which is the middle name of Defendant Carl Ellington. When the Defendants sold the funeral homes that they had operated under the McEwen name to the Plaintiffs, they included in the sale the rights to all "trademarks, tradenames (including all trade names under which [they] did business." McEwen was the last name of Carl J. McEwen, the founder of McEwen Funeral Services, Inc.

Several years after their sale, the Defendants opened a new, competing funeral home under the McEwen name and this trademark infringement lawsuit ensued.

Although Judge Murphy had entered a TRO in the first round of litigation, this time he was confronted with a 99-year old North Carolina Supreme Court decision, Zagier v. Zagier, 167 N.C. 616, 83 S.E. 913 (1914) which held that "[a]s a rule, a trade-mark cannot be taken in a surname. . . ." Id. at 617, 83 S.E. at 913.

But Zagier also held that the seller operating a business under his surname can "conclude himself from the further use of it in a similar way."

The "Likelihood Of Confusion" Test Was Inapplicable

So could the Defendants use the McEwen name without infringing on the Plaintiffs' rights? In the TRO proceeding, Judge Murphy had ruled that there was a likelihood of confusion if they did so.  

But at the preliminary injunction stage, Judge Murphy backed off that well-known federal trademark infringement standard, saying that he was "unconvinced . . . that the application of North Carolina's common law requires the adoption of the 'likelihood of confusion' test." Op. ¶39 & n.5.

He ruled that "when a surname is already in use in the name of a corporation, a subsequent 'corporation might be created by and operated under the same [name], when not in the same locality, in the absence of proof of an intent to injure the first named corporation or to avail itself fraudulently of the other's good name and reputation.'" Op. ¶40 (quoting Bingham School v. Gray, 122 N.C. 699, 707, 30 S.E. 304, 304-05 (1898)).

It was somewhat of a thin record on which to find a fraudulent intent, but Judge Murphy found that to be suggested by the following facts:

  • Defendants had begun their funeral home operations at a location previously used by Plaintiffs for the same services,
  • The sign posted at that location used script similar to that of Defendants' sign in the location,
  • Defendants had decorated the lobby of one of their locations with the same portrait of the McEwen founder that is displayed in the lobby of some of Defendants' funeral home locations, and
  • Defendant Carl Ellington had not used his middle name (McEwen) in other business contexts until the Defendants began competing with the Plaintiffs.

Op. ¶46.

Embellishing on the factor of the sudden use of the middle name, the Court said "the fact that a person inexplicably changes the use of their middle name when they enter into a competing endeavor suggests to the Court that there was an intent to acquire the existing company's good will and reputation." Op. ¶47.

Did it make a difference that the Defendants had registered a trademark in the McEwen name with the North Carolina Board of Funeral Services and the North Carolina Secretary of State? No, because the state trademark statute says that:

registration does not authorize the use . . . of a name in violation of the rights of any third party under . . . the trademark act of this State, or other statutory or common law, and is not a defense to an action for violation of any of those rights

N.C. Gen. Stat. §55D-20(e).

The Defendants were preliminarily enjoined from engaging in:

any and all activities that use the McEwen name in the provision of funeral services within Charlotte, Mint Hill, Pineville, and Monroe.

Those are the areas where Plaintiffs have operated under the McEwen name.