Expansion of Banking: What happens when First National Bank is no longer First?
Ask any community banker and she will tell you that bank name disputes are on the rise. The Third Federal Circuit Court of Appeals attributes the rise of bank name disputes to “an outgrowth of aggressive and expansionist banking flowing from the Congressional liberalization… of national banking laws.” Citizens Financial Group, Inc., v. Citizens Nat’l Bank, 383 F.3d 110, 112 (3rd Cir. 2004). This case is one of many examples of disputes arising between two financial institutions, in similar geographic regions, operating under identical or a confusingly similar name (e.g., Citizens National Bank of Evans City and Citizens Financial Group, Inc.).
Today we are accustomed to large banks having developed into multinational corporations, such as JP Morgan Chase or Wells Fargo, but this growth occurred in most cases only in the late twentieth century. But the banking industry began with banks being purely local entities, the sole bank within a town or a smaller city as opposed to multi-branch banks within the same metropolis or state. For many banking organizations, this is still true. Within these towns, the use of names like First National Bank or Columbus City Bank were distinctive enough because that was the only show in town and everyone knew where they were banking. It was unlikely that another First National Bank two towns over would confuse or mislead consumers. The National Bank Act fostered the practice of bank names being rather undistinctive and descriptive furthered by state regulation keeping a firm grip on the use of “bank” and related terms by non-banking entities.
The pace of recent change in the banking landscape has not generally been matched by changes in the traditional naming of banking institutions, as local banks have grown from single branches to multi-branch statewide, nationwide, and eventually multinational financial institutions. Throughout this expansion it has become harder and harder to differentiate between the once distinctive names of First, Second, or Third and courts are still struggling to come to terms with how to deal with rival banks operating under the same name. This article discusses both trademark and trade name principals as applied to banking and offers practice pointers in creating and maintaining bank names today.
Bank Names and Trademark Law: Requirement of Distinctiveness and Secondary Meaning
The underlying principal of trademark law is that a trademark signals to consumers the source of the associated goods from other identical or related goods and services offered by other sources. The United States Patent and Trademark Office (USPTO) and courts generally classify marks along a continuum from fanciful to generic. Fanciful, arbitrary and suggestive marks are deemed to be inherently distinctive in nature and are considered strong marks afforded a much broader scope of protection. Fanciful marks comprise terms that have been invented for the sole purpose of functioning as a trademark or service mark (e.g., PEPSI or KODAK). TMEP 1209.1(a). Arbitrary marks comprise words that are in common usage but, when used to identify particular goods or services, do not suggest or describe a significant ingredient, quality, or characteristic of the goods or services (e.g., APPLE for computers). See, e.g., Palm Bay Imports, Inc. v. Veuve Clicquot Ponsardin Maison Fondee En 1772, 396 F.3d 1369, 1372 (Fed. Cir. 2005) (VEUVE – meaning WIDOW in English – held to be “an arbitrary term as applied to champagne and sparkling wine”). Suggestive marks require imagination, thought or perception as applied to the specific goods or services, such as Wachovia bank, which is the name of the original settlement in the bank’s home region of North Carolina – its suggestive of that state’s history and therefore, inherently distinctive.
Lower on the continuum and afforded a limited scope of protection, or no protection, are descriptive and generic marks. A mark is descriptive if it describes an ingredient, quality, characteristic, function, feature, purpose, or use of the specified goods or services (e.g., APPLE PIE in relation to potpourri). In order for a descriptive mark to be eligible for federal trademark protection it must have acquired distinctiveness or secondary meaning. The weakest marks are those that are generic or have become generic, and are terms which are relevant to the consuming public such as a common name for the good or service (e.g., bank). The majority of bank names fall into the descriptive category, such as First National Bank or Columbus Savings Bank. Such marks are not inherently distinctive and must acquire secondary meaning. Therefore, banks either need to obtain common law trademark rights acquired through use and secondary meaning or federal trademark rights, which often can be difficult given the less distinctive nature of their marks.
Distinctiveness and Secondary Meaning
When a mark is descriptive, parties must prove that the mark has acquired distinctiveness through secondary meaning. Union Nat’l Bank of Texas, Laredo, Texas v. Union Nat’l Bank of Texas, Austin, Texas, 909 f.2d 839, 845 (5th Cir. 1990). “Secondary meaning is used generally to indicate that a mark has come through use to be uniquely associated with a specific source.” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763,766 (1992). Secondary meaning is found by looking at several factors: (1) direct consumer testimony; (2) consumer surveys; (3) exclusivity, length, and manner of use; (4) advertising; (5) amount of sales and number of customers; (6) established place in the market; and (7) proof of intentional copying. DeGidio v. West Group Corp., 355 F.3d 506, 513 (6th Cir. 2004). Due to the undistinctive nature of bank names, secondary meaning will play a critical role in infringement claims. It may be increasingly difficult for banks to establish secondary meaning if consumers are unable to identify the source of goods/services because banks are using similar or identical trademarks – this increases the need for consumer surveys and evidence of advertising. Courts have placed emphasis on the effect on consumers rather than the efforts of the bank. First Bank v. First Bank System, Inc., 84 F.3d 1040 (8th Cir. 1996).
Even when banks attempt to make their names more distinctive, they often fail even when trying to overcome this entrenched practice of naming. In Sun Banks of Florida. Inc., both banks began using a geographically descriptive mark but both moved to the use of the term “sun.” Sun Banks of Florida, Inc. v. Sun Federal Sav. & Loan Assoc., 651 F.2d 311, 313 (5th Cir. 1981). Although the term SUN was not descriptive of banking services over 4400 businesses in 1976 had the same idea to use “sun,” rendering a seemingly arbitrary mark unenforceable because of widespread use amongst financial institutions. In the case of a weak mark the use of minor additions such as bank versus federal savings and loan, as well as a design element, may be enough to preclude confusion and infringement but shouldn’t necessarily be relied upon.
Ramifications of not registering
Not only is it imperative to choose a distinctive trademark but also to register the mark early federally. With a federal trademark registration there is a five-year period where, if no one contests the trademark, the mark rights are treated as incontestable regardless of whether someone else had been using that name before the registration. The Ohio Valley National Bank founded in 1880, had been using this name for over 120 years before being forced to change it by one of its competitors. In 1994 another area bank changed its name to Ohio Valley Bank. The competitor speedily proceeded to obtain a federal trademark registration and the original Ohio Valley bank never contested the new banks trademark rights. This left the original Ohio Valley with the choice to coexist under the same name or change their name, which they eventually did to Ohio Valley Financial Group. The bottom line is that banks need not only take into account what they are intending to name their bank but what protection strategies they should put in place to protect their mark from the encroachment of their competitors.
State Law and FDIC Join the Party on Bank Names
Not only do the principals of basic trademark law play into naming or renaming a bank or branches but both state law and the FDIC complicate the matter – for the past 15 years, issues have been revolving around different branch names within the same institution.
The FDIC intends to keep depositors educated
The Federal Deposit Insurance Corporation (FDIC) along with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision issued an Interagency Statement weighing in on the practice of an insured deposit institution operating branches under different trade names on May 1, 1998. Then, as now, there are no federal laws or regulations requiring insured deposit institutions to operate under a single name; there are, however, state laws which must be considered with respect to operating under a trade name.
The primary concern is that each depositor is insured up to maximum federally insured amount now $250,000, and if consumers are unaware that they are dealing with a single institution they may inadvertently exceed the FDIC deposit insurance limits on the belief they are dealing with separate entities. The Statement urged institutions that consumers must be aware of the scope and limits of the FDIC under these circumstances and place a burden on the institutions to take reasonable steps to educate such consumers. The purpose of this is to ensure consumer awareness that they are not believing that the institution whose branches are operating under different names are separate or that deposits to each branch were individually insured. The Statement goes on further to give examples of protective measures in which this type of institution should take to ensure consumer awareness, ranging from posting conspicuous signs and language, using the legal name of the institution on documents, educating staff members to alleviate confusion, and obtaining a signed acknowledgement from depositors that they are aware of the circumstances.
Before adhering to the FDIC, check your state laws
A year after the FDIC Interagency Statement, states were continually weighing in on what banks could and couldn’t call themselves. The Michigan Department of Consumer and Industry Services, issued an opinion, for example, prohibiting a credit union chartered by the state from operating under multiple names even though the credit union intended to “implement reasonable measures to ensure that members and others [were] not confused or misled in their dealings with the credit union.” The Department of Consumer and Industry Services reasoned that although the FDIC has issued guidelines regarding the instant issue, the regulation of trade names was a matter of Michigan state law, regardless of whether it was state or federally chartered. The Department, in its opinion letter, points to three federal regulatory agencies indicating that none have issued any preemptive regulation expressly authorizing or prohibiting the use of trade names under federal law. In denying the credit union’s request, the Department relied solely on Michigan law – in which the name of the Michigan chartered credit union is subject to the Commissioner of the Departments approval. MCL 490.1, et seq.: MSA 23.481, et seq. Michigan law contemplated that credit unions would operate solely under one name regardless of the federal guidelines issued by the FDIC.
Contrary, in a more recent case hailing from the Nevada Board of Finance, the Board reversed a decision by the Nevada Commissioner of Financial Institutions regarding the use of the term “Nevada” within the bank name. On December 31, 2013, the Bank of Nevada merged with Western Alliance Bank based out of Phoenix. At this time the Bank of Nevada had to relinquish its Nevada bank charter and under Nevada state law a non-Nevada chartered bank is prohibited from using Nevada in its name. The Commissioner required the Nevada named bank to operate under Western Alliance Bank because it was now operating under an Arizona charter. The Board, however, found that more confusion would result by having Bank of Nevada change its name because it had been founded by Nevada residents, had been operating under the name since 1994, there was no change in ownership, and of the 13 members on the Western Alliance Board, 7 were from Nevada.
Ohio state law sets out the laws for reservation of bank names, in Chapter 11 of the Ohio Revised Code. The code requires a bank name to include “bank,” “banking,” “company,” or “co.” but may include the word “state.” Ohio Rev. Code §1103.07(A)(1-2). It further cannot be “likely to mislead the public as to the bank’s character and purpose.” Ohio Rev. Code §1103.07(A)(3). The superintendent must conclude that the name is distinguishable from all names already recorded by existing financial institutions unless the earlier institution has filed written consent with the superintendent. Ohio Rev. Code §1103.07(A)(4). A written application to reserve a bank name organized under Chapter 1113 of the Ohio Revised Code or already in existence must be filed with the superintendent, if the superintendent finds that the specified name satisfies the requirements then it will be endorsed and the reservation forwarded to the Secretary of State. Ohio Revised Code§1103.07(B).
It appears that Ohio Law does not prohibit either the use of the state name, Ohio, or preclude a bank from operating branches under different names. Although different branch names may be allowable under Ohio state law, banks must still adhere to the prescribed guidelines made by the FDIC in its Interagency Statement by making reasonable efforts to educate consumers about the scope of FDIC insurance and their insured deposits at each of these branches.
Efforts Banks Can Make
Stand out from the crowd: be distinctive and register.
When banks are created, make acquisitions, or rename it’s important to make the bank name distinctive. Today, many banks are no longer dealing in small geographic bubbles but on a much larger scale in light of improvements in communications technology, it is imperative to develop a name that falls higher on the distinctiveness continuum. Banks can do this by thinking outside the traditional “box” when it comes to naming conventions, such as First, Second, Third, or your typical geographical markers. Using common descriptive terms in naming a bank will make it much harder to protect as a trademark against other uses of the same mark in similar industries. If intending to use a mark that is not inherently distinctive it may be a benefit to include minor additions, such as using a term or combination of terms that signify bank without actually using the term bank, as well as adding a distinguishable design element. By taking these factors into consideration banks would be more likely to be able to obtain a federal trademark registration due to the distinctiveness of the mark, which in turn will place less emphasis on secondary meaning in the event of a trademark infringement action.
Register early on, as the dilemma Ohio Valley Bank faced after nearly 120 years of operating under the same name, it is important to register early once a bank name has been decided and recorded. Federal registration provides many advantages including becoming incontestable after five years.
State Laws v. FDIC Guidelines
While naming a bank, it is important to check your state laws first. State law not federal law proscribes the requirements of bank names. From the examples discussed above, its apparent that states vary widely in the their legal approach to bank names, so there are implications to be considered when selecting a state in which to charter your bank if a multi-state business plan has been adopted. If the selected state does not prohibit the use of different branch names operated by a single entity and a decision is made to use different names, then the chartering group should make sure it adheres to FDIC guidelines and implements effective consumer awareness procedures.