Galt House, Inc. v. Home Supply Company
483 S.W.2d 107, 68 A.L.R. 3d 1159, 174 U.S.P.Q. (BNA) 268 (1972)
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Rule of Law:
The mere act of incorporating under a particular name does not create a perpetual right to that name; a non-operating corporation only preempts the name for a reasonable period to begin business, after which it cannot enjoin an actual user of the name under principles of unfair competition.
Facts:
- The original Galt House Hotel was a famous Louisville establishment in the 19th century but ceased operations in 1920.
- The corporation that operated the last Galt House hotel expired in 1961, having not engaged in the hotel business since its closure.
- In February 1964, Arch Stallard, Sr. incorporated Galt House, Inc., but the corporation never received its minimum capital, had no assets, and conducted no business beyond a few sporadic and unsuccessful inquiries about potential locations.
- In April 1969, Home Supply Company, an active hotel construction and operation business run by Al J. Schneider, submitted plans to a city agency for a new hotel bearing the name 'Galt House', a name recommended by city officials.
- Home Supply Company was awarded the contract and began construction on a 26-story, 714-room hotel in May 1970.
- While the hotel was under construction, Home Supply Company affixed a sign bearing the name 'The Galt House' to the building and began scheduling conventions and room reservations.
- In April 1971, Home Supply Company successfully registered 'The Galt House' as a service mark with the Secretary of State of Kentucky.
Procedural Posture:
- Galt House, Inc. (plaintiff) instituted an action in the trial court to enjoin Home Supply Company and Al J. Schneider (defendants) from using the trade name 'Galt House'.
- The trial court took evidence through depositions and written interrogatories.
- The trial judge, in a judgment made final for appeal, refused to grant the injunction sought by the plaintiff.
- Galt House, Inc. (appellant) appealed the trial court's decision to the Court of Appeals of Kentucky.
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Issue:
Does the mere act of incorporating under a specific name, without conducting any business or establishing goodwill, grant a corporation the right to enjoin another entity from using that same name for an active business?
Opinions:
Majority - Reed
No. The mere act of incorporating under a name, without establishing a business or goodwill, does not grant a perpetual right to prevent another entity from using that name. The legal doctrine of unfair competition protects the goodwill and reputation of an active business, which the plaintiff, Galt House, Inc., did not possess. As a nonuser of the name, Galt House, Inc. had no customers, conducted no business, and had no reputation that the defendants could pirate. While incorporation may preempt a name, it is only for a reasonable period to allow the business to begin. Because the plaintiff had remained dormant since 1964, this reasonable period had long passed, and it lost any right to enjoin the defendants, who were actively using the name in a substantial business enterprise.
Analysis:
This decision clarifies that corporate name reservation is not a perpetual property right but is instead governed by the common law principles of unfair competition, which are rooted in actual use in commerce. The ruling prevents entities from 'squatting' on desirable trade names indefinitely by creating 'paper' corporations without any genuine intent to conduct business. It reinforces the legal principle that rights in a trade name are appurtenant to an established business and its associated goodwill. Consequently, future disputes will focus on whether a corporation has taken meaningful steps to start a business within a reasonable time, rather than on the mere fact of incorporation.
