Full opinion text
CALEB M. WRIGHT, Chief Judge. In this declaratory judgment action filed pursuant to 28 U.S.C. § 2201 certain minority shareholders of Wellington Fund, Inc., seek a determination of the ownership of the name “Wellington” in the investment company industry. The following Stipulation of Facts has been entered of record: 1. Plaintiffs are citizens of the Commonwealth of Pennsylvania. All of the defendants are corporations incorporated under the laws of the State of Delaware. The amount in controversy exceeds, exclusive of interest and costs, the sum of $10,000. 2. Plaintiffs are now and were at the time of the transactions herein complained of stockholders of defendant Wellington Fund, Inc., holding 211.482 shares of common stock, par value $1 per share. 3. Plaintiffs bring this action in the attempt to enforce secondary rights claimed to be held by themselves and all other stockholders similarly situated in Wellington Fund, Inc., and assertedly on behalf of Wellington Fund, Inc. for the benefit of Wellington Fund, Inc., because Wellington Fund, Inc., refused after demand to enforce alleged rights which should, plaintiffs claim, properly be asserted by it. 4. This action is not a collusive one to confer on a Court of the United States jurisdiction of a cause of which it would not otherwise have cognizance. 5. Defendant Wellington Fund, Inc. (hereinafter called “Wellington Fund”) is an open-end, diversified management investment company incorporated on December 26, 1928, which is registered under the Investment Company Act of 1940, which at September 1, 1958, had an authorized capitalization of 100,000,-000 shares $1 par value common stock with equal voting rights and no preferences as to conversion, exchange, dividends, retirement, or any other feature; and had at September 1, 1958, 57,708,-791 shares outstanding of a net asset value of $750,709,451 with approximately 248,000 shareholders located in every state of the United States and in many parts of the world. No shareholder owns beneficially as much as 5 per cent of the outstanding shares. Wellington Fund’s objectives are conservation of principal, reasonable income return, and profits without undue risk with fundamental investment policies to achieve these objectives of careful selection of individual securities, continuous conservative management supervision, and balanced investing in bonds, preferred and common stocks of many separate companies in different industries. At December 31, 1958, Wellington Fund had 262,000 shareholders and net assets of $857,964,-256. When originally incorporated this company was called Industrial and Power Securities Co. but by amendment to its Certificate of Incorporation filed July 11, 1935, changed its name to Wellington Fund, Inc. 6. Defendant The Wellington Company (hereinafter called “Wellington Company”) is a corporation incorporated on January 21, 1931, which acts as both investment adviser and, up. to the date of the complaint in this case, principal underwriter of Wellington Fund only. When originally incorporated this company was called W. L. Morgan & Co. but by Amendment to its Certificate of Incorporation filed April 10, 1952, it changed its name to The Wellington Company. On April 12, 1952, Wellington Company entered into a management and investment advisory agreement with Wellington Fund, under which Wellington Company has furnished Wellington Fund with statistical research, analytical and general management services, including research and administrative personnel and services, with annual fee to Wellington Company of: (a) One half per cent on the first Seventy Million Dollars ($70,000,-000.00) of average net assets of Wellington Fund as of the end of each month; (b) Three eighths per cent on the next Fifty Million Dollars ($50,-000,000.00) of average net assets of Wellington Fund; and (c) One fourth per cent on average net assets of Wellington Fund over One Hundred Twenty Million Doilars ($120,000,000.00). The total management fee paid by Wellington Fund to Wellington Company for these services in 1957, was $1,757,404.79. In 1958, the total management fee paid by Wellington Fund to Wellington Company was $2,040,474.96. Walter L. Morgan, president and director of Wellington Fund, is the president, director and beneficial and record holder of the common stock and substantially all of the preferred stock in Wellington Company. At the date of the complaint five officers of Wellington Fund were officers or directors of Wellington Company and three other officers of Wellington Fund were also employees of Wellington Company. Wellington Company, acting as principal underwriter only for Wellington Fund has not actively up to the date of the complaint in this ease, distributed the securities of any other investment company, and receives from the total sales commission from the sales of Wellington Fund shares 2 per cent of the offering' price on single transactions less than $25,000; iy2 per cent on single transactions of $25,000 but under $50,000; 1 per cent on single transactions of $50,000-but under $100,000; and 0.6875 per cent-ón single transactions of $100,000 and over. In 1957, net commissions of Wellington Company, as principal underwriter and national distributor of Wellington Fund, were $757,716 on distribution of Wellington Fund shares, after payment-of $4,476,057 to dealers and sales representatives. In 1958, Wellington Company reported net commissions of $861,-364.32 on distribution of Wellington-Fund shares, after payment of $5,511,-532.75 to dealers and sales representatives. Wellington Company, following the completion of the initial offering of Wellington Equity Fund shares, was intended to and did in fact become principal underwriter of Wellington Equity Fund shares whose shares it continuously offers at a price which is equal to the net-asset value per share, plus a sales commission, retaining for itself as principal: underwriter a commission in the amounts described above for underwriting Wellington Fund shares. Wellington Company ceased acting as management adviser of Wellington Fund as of April 13, 1959, at which time the duties of investment adviser for Wellington Fund were undertaken by Wellington Management Company. 7. Defendant Wellington Equity Fund, Inc. (hereinafter called “Wellington Equity Fund”) is a diversified management investment company incorporated on August 26, 1958, which is registered under the Investment Company-Act of 1940. As of the filing of the complaint in this case, Wellington Equity-Fund was a closed-end investment company but became an open-end investment, company with redeemable shares upon completion of the initial public offering of 3,000,000 of its 50,000,000 authorized shares of common stock of one class of a par value of $1 per share. Wellington Equity Fund had no stock outstanding at the date of the complaint but upon issuance of its shares of common stock, each ■share became entitled to one vote and participates equally in dividends, distributions, and net assets. Said shares are fully paid and non-assessable and with no preference on conversion, exchange, retirement, or any other feature. Its ■shares are redeemable at a redemption price to be ordinarily the net asset value per share. The purpose and objectives of Wellington Equity Fund are to achieve growth of capital and increased income over the years by investments composed largely •of common stock but which may also include securities such as bonds and preferred stocks which are convertible into ■common stocks, utilizing in the achievement of its objectives experienced in-westment management and diversifying its investments over a carefully chosen list of securities in a broad number of industries. All but one of the officers ■and/or directors of Wellington Equity Fund are officers and/or directors of 'Wellington Fund. Paragraph Fifteenth (g) of the Certificate of Incorporation of Wellington .Equity Fund provides: “The Corporation (Wellington .Equity Fund) acknowledges that it has obtained its corporate name by ■consent of The Wellington Company and agrees that if at any time the said The Wellington Company ■and/or an affiliate or a successor to the interests thereof (whether such succession be by merger, consolidation, purchase of assets, or otherwise) ceases to be the investment ad-visor of the Corporation (Wellington Equity Fund) and national distributor of its shares, it shall at the written request of said The Wellington Company and/or such affiliate ■or successor change its name so that no reference therein shall be contained to “Wellington”, “Morgan”, “Claymont” or “Locust Street”. 8. Defendant Wellington Company, Ltd. (hereinafter called “Wellington, Ltd.”) is a Delaware corporation incorporated on December 30, 1957, whose only present business is to serve as an investment advisor of Wellington Equity Fund under a management agreement pursuant to which Wellington, Ltd. is to furnish general management, investment management, research and statistical services to the investments of Wellington Equity Fund, for a fee payable quarterly in an amount equal to % of 1 per cent (equivalent to % of 1 per cent annually) of average net assets of Wellington Equity Fund. In return for this management fee, Wellington, Ltd. has agreed to furnish executive and designated administrative personnel to provide statistical, research and analytical services, to recommend purchases and sales when deemed necessary, and in general, to supervise the overall management and investment program of Wellington Equity Fund. At the date of the complaint, the personnel of Wellington, Ltd., consisted of seven part-time account supervisors, counsellors, and executives; six part-time economists, statisticians and research personnel; and 16 other part-time personnel, it being anticipated that the persons employed by Wellington Company in its investment advisory function for Wellington Fund would serve in similar capacity with Wellington, Ltd. Walter L. Morgan, president and director of Wellington Fund and Wellington Equity Fund, is president and director of Wellington, Ltd. and beneficial and record holder of substantially all of the outstanding common stock of Wellington, Ltd. Mr. Morgan and members of his family own a substantial majority of the preferred stock of Wellington, Ltd. Wellington, Ltd.’s management contract with Wellington Equity Fund provides in Paragraph 5 thereof as follows: “5. Except to the extent necessary for performance of Manager’s (Wellington, Ltd.’s) obligations hereunder, nothing shall restrict the right of Manager or any of its directors, officers or employees of Equity Fund to engage in any other business or to devote time and attention to the management or other aspects of any other business whether of a similar or dissimilar nature or to render service of any kind to any other corporation, firm, individual, or association.” 9. Wellington Management Company (which is not named as a defendant in this action) is a Delaware corporation originally incorporated under date of February 20, 1933, with the name The Wellington Fund, Inc. By amendment to its Certificate of Incorporation dated June 1, 1935, the name of this company was changed to Wellington Investors, Inc. and by further amendment dated February 13, 1959-, its name was changed to Wellington Management Company. Wellington Management Company under date of April 13, 1959, after the present litigation had been instituted, entered into an investment advisory contract with Wellington Fund whereby Wellington Management Company agreed to furnish advice and recommendations with respect to the purchase and sale of securities and the making of commitments; agreed to place at the disposal of Wellington Fund such statistical research and analytical and technical service, information and reports as may reasonably be required and further agreed to furnish Wellington Equity with all executive personnel and all other required personnel except for certain junior officers and employees. The said management advisory contract empowered Wellington Management Company in general to superintend the affairs of Wellington Fund subject to the control of the Board of Directors, Executive Committee and Financial Committee of the said Wellington Fund. The management advisory contract between Wellington Fund and Wellington Management Company provides in Paragraph Five thereof as follows: “5. Except to the extent necessary for performance of Manager’s (Wellington Management Company’s) obligations hereunder, nothing shall restrict the right of Manager or its directors, officers or employees to engage in other business or to render investment, advisory, underwriting or other services to any investment company, or any other corporation, firm, association or individual”. 10. Wellington Fund has used that name since July, 1935, when the Certificate of Incorporation of Industrial and Power Securities was amended to change the name of that company to Wellington Fund, Inc. The shares of Wellington Fund have been continuously distributed in interstate and intra-state commerce since July, 1935, and in literature and information relating to Wellington Fund, it has been referred to as “A name to remember when investing”. Wellington Fund has become one of the nation’s largest mutual funds and more of its shares measured in total dollars have been sold over the past five years than the shares of any other single dealer distributed mutual fund. 11. The officers and directors of Wellington Fund have holdings in the aggregate of less than of 1 per cent of its outstanding shares, have the duties and responsibilities which are attendant upon those positions and as such exercise management over Wellington Fund. The said officers and directors permitted Wellington Equity Fund to be incorporated with the name “Wellington Equity Fund, Inc.” although the stockholders of Wellington Fund have not given ex> press approval of use by Wellington Equity Fund, Inc. of that name nor have such stockholders given express authority for such action. 12. As of the present time, Wellington Equity Fund has more than 28,000 shareholders and net assets of more than $41,000,000. 13. Financial & Power Securities Co. was a Delaware corporation incorporated on August 20, 1929. Financial & Power Securities Co., by amendment to its Certificate of Incorporation filed July 2, 1931, changed its name to The Wellington Corporation. It was investment ad-visor for Wellington Fund (then Industrial & Power Securities Co.) until on or about April 13, 1952. Wellington Corporation was dissolved by a Certificate of Dissolution filed with the Secretary of State of the State of Delaware in September 24, 1952. 14. In connection with the liquidation and dissolution of Wellington Corporation there was no formal written conveyance of the name to anyone. 15. On or before June 19, 1935, Industrial and Power Securities Co. sent a letter to Wellington Corporation advising that the name of Industrial and Power Securities Co. had been changed to Wellington Fund, Inc. The Board of Directors of Wellington Corporation at a meeting on June 19, 1935, adopted a resolution directing its proper officers to execute a consent to the use of the said name. 16. Under date of March 28, 1952, there was filed with the Secretary of State of the State of Delaware by Wellington Corporation a document advising that the said corporation proposed to dissolve within 90 days from the said date and did thereby consent to the use of the name of The Wellington Company by W. L. Morgan & Company. 17. The directors of Wellington Fund, at a meeting held February 27, 1952, recorded in their Minutes as follows: “The Chairman then referred to the informal discussions previously had concerning the renewal of the Investment Advisory Contract between Wellington Fund and Wellington Corporation. A general discussion of this subject followed and it was the sense of the meeting that the present contract between the Fund and Wellington Corporation should not be renewed but that the activities of Wellington Corporation and W. L. Morgan & Company should be combined into one company for greater efficiency and the Investment Advisory Contract be made with this company. It was pointed out that if this combination of activities were to be made effective, it would be much preferable for W. L. Morgan & Co. to be the surviving corporation by reason of its many hundreds of contracts with investment dealers throughout the country and by reason of its position and agreements with The Pennsylvania Company for Banking and Trusts in the operation of the Wellington Investment Plan. However, it was felt advisable to retain the Wellington name for the investment advisor, which would require a change in the name of W. L. Morgan & Co. to The Wellington Company, which company had consented to this change.” 18. There were filed with the Secretary of State of the State of Delaware under date of December 30, 1957, by Wellington Co., Wellington Fund and' Wellington Co. of Delaware documents-consenting to the organization of Wellington Company, Ltd., in the State of Delaware. Such action was taken without the express approval of the shareholders of Wellington Fund. 19. No registration statement under the Investment Company Act of 1940 has-been filed by or on behalf of any defendant or any entity related to any defendant other than Wellington Fund, Inc.,. Wellington Equity Fund, Inc. and Wellington Foundation. 20. When consideration was being-given to the creation of a second mutual fund which ultimately became Wellington Equity Fund, it was intended to use the name Wellington. 21. The same securities may and in-some instances do appear in the portfolio-of Wellington Fund and Wellington. Equity Fund. 22. There are some shareholders in-common between Wellington Fund and Wellington Equity Fund. 23. Many of the dealers who deal in and sell shares of Wellington Fund also-deal in and sell shares of Wellington! Equity Fund. 24. All of the dealers and sales representatives who deal in and sell shares of Wellington Fund have been given the right to sell shares of Wellington Equity Fund as well. 25. On or about September 4, 1958, plaintiffs through their representatives objected to the officers and directors of Wellington Fund about the creation of Wellington Equity Fund, but their requests for a change of the plans relating to Wellington Equity Fund were not complied with. The Complaint is in six counts. Counts I and VI charge the defendants with unfair competition in the use of the name “Wellington”. The remaining counts, II through V, assert the alleged .acts of unfair competition also constitute violations of the Securities Act of 1933 (Count II), the Securities Exchange Act of 1934 (Count III), the Investment Company Act of 1940 (Count IV), and the Federal Trade Commission Act (Count V). Diversity of citizenship and federal question jurisdiction are asserted. This suit was instituted October 3, 1958. Approximately two months before, on July 25, 1958, Congress amended 28 U.S.C. § 1332 to provide: “(c) For the purposes of this section and section 1441 of this title, a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.” (Emphasis supplied.) The Complaint is silent concerning defendants’ principal places of business. In response to Court inquiry counsel for defendants advised that the principal offices of defendants at the commencement of the present action were situated as follows: Wellington Fund, Inc. Delaware Wellington Equity Fund Delaware Wellington Company, Ltd. Delaware The Wellington Company Pennsylvania A serious jurisdictional question is thus posed by virtue of the 1958 amendment noted above insofar as diversity is relied on for jurisdiction. After a proper alignment of the parties to reflect their actual interests, there must be complete diversity between the plaintiffs on the one hand, and the defendants on the other, i. e., each plaintiff must be able to sue each defendant. The primary purpose of the 1958 amendment in redefining corporate citizenship was to restrict federal jurisdiction. Subsection (c) is consonant with the declared policy toward “greater recognition of local corporate activity as equivalent to citizenship for diversity purposes.” The plaintiffs are citizens of the Commonwealth of Pennsylvania. In view of the dual corporate citizenship conferred by 28 U.S.C. § 1332 as amended, Wellington Company having its principal place of business in Pennsylvania would also be deemed a citizen of Pennsylvania. Consequently, there would not be complete diversity between the plaintiffs and defendants and diversity jurisdiction would not obtain. A plaintiff under F.R.Civ.P. 21 may be permitted to drop a party not indispensable to the lawsuit whose presence destroys jurisdiction. The rule does not, however, authorize the Court on its own motion to dismiss a party who is properly joined but as to whom the Court lacks jurisdiction. Plaintiffs have made no application to have Wellington Company dropped as a party defendant, nor have the parties attempted to invoke any of the principles governing ancillary jurisdiction to temper the harsh result caused by the complete diversity doctrine. Instead, plaintiffs rely on the principle of pendent jurisdiction as enunciated in Hurn v. Oursler and Bell v. Hood to clothe the Court with the requisite jurisdiction to entertain the common law unfair competition causes. The legal tenets involved have been fairly analyzed by counsel for defendants as follows: “As I read the decisions in Bell v. Hood, 327 U.S. 678 [66 S.Ct. 773, 90 L.Ed. 939] (1946), * * *, and Hurn v. Oursler, 289 U.S. 238 [53 S.Ct. 586, 77 L.Ed. 1148] (1933) * * * the following legal principles appear to be clear: “1. If a Complaint seeks recovery under the Constitution or Federal Statutes, the Court has jurisdiction even though it may ultimately decide that no cause of action is stated or sustained under the Constitution or the Statutes, unless “(a) The claim under the Statute or Constitution is clearly immaterial and made solely for the purpose of obtaining jurisdiction, or “(b) The claim is wholly insubstantial and frivolous. “2. If there are Federal grounds and non-Federal grounds asserted as a basis for relief on the same facts, the Federal Court will have jurisdiction over the entire case even though it determines that no cause of action is made out under the Federal grounds.” Defendants concede, the Complaint “seeks recovery, in Counts II through V, under the Federal Statutes referred to therein and that the same facts are asserted as the basis for the common law Counts of the Complaint as are asserted as the basis for Counts II through V. -x- * * [T]hat Counts II through V were not added solely for the purpose of obtaining jurisdiction.” Defendants, however, reserve the right to argue Counts II through V do not state causes of action and these counts are “insubstantial and frivolous.” For an effective examination of these issues it is necessary at this stage to consider the substance of the common law counts. State law is applicable where diversity is present and the unfair competition does not come within the provisions of the Lanham Act, 15 U.S.C.A. § 1051 et seq. There is, however, a split of authority as to the governing law where pendent jurisdiction is involved. Judge Wyzanski in National Product Fruit v. Dwinell-Wright Co. after exploring the formidable position in favor of applying uniform principles to unfair competition claims, concluded the arguments not to be controlling and that a court having pendent jurisdiction should apply local common law in adjudicating the unfair competition action. One commentator, preferring Judge Wyzanski’s rationale, has observed: “It would seem anomalous to apply federal law to a claim which, if it were not pendent under section 1338(b), would be governed by state law.” Professor Moore, on the other hand, advocates application of federal law where jurisdiction is pendent and the unfair competition is multi-state in effect. This approach, indeed, has merit when it is considered that prior to Erie v. Tomkins, federal law was considered as controlling issues of both trademark infringement and unfair competition. As a consequence, the states had little occasion to build an independent body of case law in these areas. For this reason, and because of the multi-state nature of the problem, instead of formulating novel concepts many present day courts after paying homage to Erie resort to the well defined federal doctrines. A canvass of the Delaware decisions reveals that the local courts apply the universal principles governing the law of unfair competition. In Standard Oil-shares v. Standard Oil Group, the Chancellor following an extensive quote from the United States Supreme Court’s decision in American Steel Foundries v. Robertson, stated: “A corporate name being thus categorized as either a trade-name or trade-mark, more properly the former, the right to the exclusive use of such a name is to be tested, as before indicated, by the principles which govern in the law of unfair competition.” The principle was reaffirmed in American Radio Stores v. American R. & Television S. Corp. and has never been repudiated by any Delaware decision. In E. I. Du Pont de Nemours & Co. v. DuPont Safety R. Corp. The Court of Chancery in enjoining a razor manufacturer from appropriating the DuPont symbol, predicated its determination exclusively upon its own pre-Erie decision in American Radio Stores v. American R. & Television S. Corp. supra, the Restatement of the Law of Torts, two federal decisions — Best Foods v. General Mills, Telechron, Inc. v. Telicon Corp., and an adjudication of a New York trial court. Similarly in Coca-Cola Co. v. Nehi Corporation, the Delaware Chancery Court citkig the federal decision in Allen v. Walker & Gibson, D.C., 235 F. 230, adopted the fundamental precept that to constitute trade name infringement it is not necessary that the similarity in the name complained of be “such as to deceive only the cautious purchaser” but that it is sufficient if the similarity in name is such “that it is likely to deceive the ordinary purchaser.” The parties have cited no law, nor has the Court in its independent research, discovered any authority indicating that the decisional law of Delaware, in any respect, conflicts with the fundamental principles of the law of unfair competition herein pertinent, that have been formulated and articulated by federal tribunals. No exception has been interposed by either side as to the governing rules. Issue is taken merely with respect to application of the appropriate principles to the particular fact complex. Wellington Fund, and Wellington Equity Fund are national in scope, therefore a Delaware Nisi Prius Court would be expected to draw heavily on general principles, instead of becoming bogged down in difficult sophisticated conflict of laws problems. Against this background it becomes unnecessary to formally declare and be counted either as favoring the local law approach of Judge Wy-zanski or the uniform federal system to the extent advocated by Professor Moore. The thrust of plaintiffs’ case is simply that Wellington Fund owns the name “Wellington” and has the right to use that name to the exclusion of all others in the investment company industry. Defendants counter contending: 1. The Goodwill inherent in the name “Wellington” does not- relate to any activity of Wellington Fund, but symbolizes the activities of the investment manager and sponsor. 2. There is neither actual confusion nor likelihood of confusion of the public resulting from the use of the name “Wellington” by Wellington Equity Fund. 3. The creation and continued existence of the Wellington Equity Fund have not, and will not, damage Wellington Fund, but have been, and will be, of advantage to Wellington Fund. 4. Wellington Fund has validly and properly consented to the use of the name “Wellington” by Wellington Equity Fund. 5. Wellington Fund is not the owner of trade name rights in the name “Wellington” because it was not the first to use the name in this field, because it acquired the name only by the consent and license from the predecessor to the Wellington Company and because it has not had the exclusive use of the name in this field. These matters will be considered seria-tim. I. In limine it is clear that if plaintiffs be correct in their contentions the charge of unfair competition has been sustained for, “the most common form of unfair competition is the imitation of a trade name, trade symbol or device by a competitor.” Defendants’ position on this initial point follows: “The name ‘Wellington’ has value only as a symbol of goodwill. The goodwill has been generated by the investment management and distribution services which have been supervised, controlled and performed by the Wellington Company. The goodwill, and thus the name, belong to the Wellington Company. That being so, it is entirely proper for the Wellington Company to use the name on a second of its products so long as there will be no confusion of the public and no damage to the first product. This is a situation in which the second son automatically takes the family name of his father. “The complaint alleges that the name ‘Wellington’ has acquired a well-recognized meaning and reputation in the investment field, but Plaintiffs offered no evidence as to what that meaning and reputation are. Defendants’ evidence establishes beyond question that the meaning and reputation are identified with the investment manager and sponsor. “Perhaps it should be observed in passing that, in concluding that the Wellington Company owns the goodwill and the name it is not necessary to consider what rights Wellington Fund may have to use the name. That question is not raised by this case, and is not involved in such disposition of it.” Defendants basic theme is that the entity responsible for generating goodwill is entitled to employ the name symbolizing the goodwill. Plaintiffs contend, (1) a corporate name belongs to the corporation; and (2), the goodwill of a business conducted by a corporation belongs to the corporation. Wellington Fund is not the corporate shell defendants would have this Court find. Wellington Fund is an $858 million corporation and has over 262,000 stockholders. There are 13 persons on the Board of Directors, seven of whom are not permitted by law to have any affiliation with either the managing or sponsoring companies. Wellington Fund was formed pursuant to the corporate laws of the State of Delaware, which provide in part: “(a) The business of every corporation organized under the provisions of this chapter shall be managed by a board of directors, except as hereinafter or in its certificate of incorporation otherwise provided.” The by-laws of Wellington Fund state : “Fifth: The property and business of the Corporation shall be managed and controlled by its Board of Directors, thirteen in number. * * * “Sixth: The Board of Directors shall have, in addition to such powers as are hereinafter expressly conferred on it, all such powers as may be exercised by the Corporation, subject to the provisions of the statute, the certificate of incorporation and the bylaws, subject also to regulations which may be from time to time made by the stockholders.” The Investment Company Act of 1940 declares that, “(a) * * * [I]t shall be unlawful for any person to serve or act as investment adviser of a registered investment company, except pursuant to a written contract, which contract, * * * has been approved by the vote of a majority of the outstanding voting securities of such registered company and— ****** “(2) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the board of directors or by vote of a majority of the outstanding voting securities of such company; “(3) provides, in substance, that it may be terminated at any time, without payment of any penalty, by the board of directors of such registered company or by vote of a majority of the outstanding voting securities of such company on not more than sixty days’ written notice to the investment adviser; and “(4) provides, in substance, for its automatic termination in the event of its assignment by the investment adviser. “(b) * * * [I] t shall be unlawful for any principal underwriter for a registered open-end company to offer for sale, sell, or deliver after sale any security of which such company is the issuer, except pursuant to a written contract with such company, which contract, * * * — “(1) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the board of directors or by vote of a majority of the outstanding voting securities of such company; and “(2) provides, in substance, for its automatic termination in the event of its assignment by such underwriter.” (Emphasis supplied.) Defendants recognize the Board of Directors are required to, and in fact, do function in a significant manner: “ * * * The directors bring to Wellington Fund board their good sense, knowledge and experience for the primary purpose of seeing to it that the investment manager lives up to that contract and operates within the objectives and fundamental policies which have been established for the Fund and which cannot be changed without shareholder approval under the Investment Company Act of 1940; 15 U.S. C. § 80a-13. “The testimony demonstrates that the Board of Directors of Wellington Fund fully discharges this responsibility. It receives at each meeting a full and complete report as to every change in the portfolio of the Fund together with the reasons for the change. Economic and ' market forecasts are presented by the investment manager and an indication is given as to the plans which the manager intends to follow for the following period. In this respect the Board of Directors is exercising watchdog responsibilities and appropriate supervision of the corporate affairs, but it does not ‘control’ the investment management provided by the investment manager. “Of course, the Board of Directors has the right and power of absolute control in that it could, if it so decided, refuse to follow the advice of the investment manager, direct that the investments be made in accordance with its own decisions, and terminate the management contract.” (Emphasis supplied.) Defendants describe the workings of an investment company as, “ * * * [A] large number of investment advisory or investment counsel accounts put together into a convenient corporate structure or in some cases a form of trust, and these companies are created by a sponsor, an originator, who usually is a man experienced in investment management, or men, I mean to say, and companies have been formed originally to provide to the average person of limited means the same type of investment counsel services and an opportunity for diversification that prior to their creation was available only to fairly wealthy people, and I think that the best definition that I have ever come across of an investment company is just that, that it is a group of investment counsel accounts under management.” Defendants suggest that from a functional standpoint Wellington Fund operates in the same manner as a business trust, and that “it would be absurd for the law to distinguish insofar as goodwill is concerned between a corporate mutual fund and a mutual fund in business trust form or a common trust fund of a bank.” In effect, defendants urge that the corporate veil of Wellington Fund be pierced, or in the alternative, that special principles be held applicable to investment companies. The Court is mindful that seemingly many practices prevail in this industry that in other areas are legally and economically intolerable, and perhaps this Court in adopting plaintiffs’ contentions is out of step with a “fourteen billion dollar mutual fund industry.” It would, however, be unwise at this time to sit in judgment of the entire industry and the Court will not attempt to determine any controversy except that which is now before it. The defendants have chosen to conduct their affairs via the corporate form. Sound policy reasons dictate, no exception be made in the instant litigation which would permit defendants to function outside the carefully delimited boundaries of corporate law. Wellington Fund is the second largest diversified, open-end, balanced fund and ranks third among all mutual funds operating in the United States. Defendants submit, “it is not necessary to consider what rights Wellington Fund may have to use the name,” for all the Court need do is conclude Wellington Company owns the “Wellington name with its attendant goodwill”. The Court is thus asked to forsake 262,000 investors with holdings of $858 million in favor of a corporation controlled by one person, Walter L. Morgan, who is also president and director of Wellington Fund. If this Court did as defendants suggest, i. e., hold Wellington Company owns the name “Wellington” without determining the interest of Wellington Fund in the name, there would be nothing to prevent Wellington Company at some future time, in the event the present management contract was terminated, from seeking to enjoin the use of the name by Wellington Fund. Defendants urge this Court enunciate a rule that the entity responsible for generating the so-called “habit of patronage” is entitled to the ownership symbol reflecting it. Defendants proceed that in this instance the goodwill has been generated by the investment management and distribution services, which have been supervised, controlled and performed by Wellington Company. In conclusion defendants state: “that being so, it is entirely proper for the Wellington Company to use the name on a second of its products.” This rationale is deemed patently vulnerable. To hold the creator of goodwill is entitled to own the symbol signifying the goodwill, would mean that the management team of any company could exploit the name of the employer at management’s pleasure. To state the proposition exposes its untenability. It would mean, General Motors does not have the exclusive right to use its name. It would mean, that perhaps, the president of American Motors, if he desired, could appropriate the name “American Motors” for his own selfish purposes. It would mean that where a Madison Avenue advertising firm created an image that was paid for and adopted by a client, the client, nevertheless, did not own that which it purchased. Defendants conceding that General Motors owns its own name to the exclusion of all others, contend the appropriate analogue to be: “This case in my judgment, * * , is a situation in which, to use another analogous situation which I think is clear to us, where the purchaser of a box of Kleenex has come into this Court and said, ‘We have a name, we bought this box, it is valuable, and we want you to prevent Kimberly & Clark, the corporation that produced this box of Kleenex and published the name, from bringing out another hand towel, paper towel, and using the name Kleenex on that paper towel.’ These shares of Wellington are the product being sold. This is not anything like the normal situation in which a corporation is building up its own goodwill. Most corporations which are building up goodwill of their own are doing it with respect to a product which they are issuing and selling and which inures to the benefit of their shareholders. This is not that situation because the product here, if it is a product, or a commodity, however we want to call it in a broad term, is the shares of the Fund itself. The shares are what are being sold, and they are traded in far differently from the shares of any other corporation or corporations in the customary sense. And in that sense the mutual fund is a far different breed of cats than the normal business corporation.” This reasoning requires the conclusion the $858 million dollar Wellington Fund is the captive of one man, Walter L. Morgan. The Kleenex analogy com- pletely ignores the fact that the paper product of Wellington Fund embodies the incidents of corporate ownership. One such incident being a voice in the approval or disapproval of the investment advisory and underwriting contracts. The concomitants alleged by defendants responsible for creation of the goodwill are the distribution and investment management services. Both of these functions are either directly or indirectly paid for by Wellington Fund. Wellington Fund shares are distributed by Wellington Company pursuant to a year to year agreement dated December 1, 1953 terminable at any time by Wellington Fund according Wellington Company six months notice. This agreement provides: “7. It is hereby mutually agreed that [Wellington] Company in full satisfaction of all services herein agreed to be performed by it in this Agreement shall retain a sum equal to 8% of the offering price of all shares of Fund sold by it * * .” Wellington Company as principal underwriter and distributor of Wellington Fund shares received net commissions of $757,716 in 1957 and $861,364.32 in 1958. It is not denied, the advertising campaigns and extensive sales programs conducted by Wellington Company enhanced the value of the Wellington name. Wellington Company, however, was generously compensated for its endeavors made possible solely by virtue of its exclusive underwriting arrangement with Wellington Fund permitting Wellington Company to retain 8 per cent of the offering price of Wellington Fund shares sold. Wellington Company sim- . ply asks too much when it insists upon . the right to exploit the symbol, in addition to the handsome monetary rewards, it has already received. Similarly, the management element affords defendants’ position little. Wellington Fund paid Wellington Company $1,757,404.79 in management fees for the year 1957 and $2,040,474.96 in 1958. The management contract, under the Investment Company Act of 1940, must be specifically approved “at least annually by the board of directors or by vote of a majority of the outstanding voting securities of such company”, and may be terminated by Wellington Fund upon sixty days’ notice. Congress in requiring yearly approval was clearly attempting to create an atmosphere of objectivity for directors and/or shareholders of investment companies at relatively short periodic intervals to specifically appraise and evaluate the performance of the investment adviser, and if the adviser were not performing satisfactorily Congress intended that the investment company have complete freedom to terminate the advisory contract. This determination of the directors or shareholders must be insulated from extraneous considerations. To hold the investment company must cease using its name, if the advisory contract be terminated or that the investment adviser may exploit the name of the investment company for its own selfish ends would simply frustrate the clearly defined legislative purpose, by interjecting into the deliberations subtle pressures tending to undermine the objectivity required of the directors and shareholders. Defendants’ position is certainly not enhanced by the action of Wellington Fund engaging a new corporation, Wellington Management Company in April 1959 as its investment adviser. Endorsement of defendants’ views that the name of a corporation belongs to the entity or entities responsible for generating the goodwill and that in the instant case, the goodwill is attributed to the management and distribution functions, would require devising an arithmetic formula in order to properly allocate proprietary interests in the Wellington name. Mathematics has no office in determining ownership to this valuable corporate asset. There is simply no basis in law, or in fact, for defendants’ theory attributing the ownership of the name and goodwill of Wellington Fund to Wellington Company because at one time Wellington Company managed Wellington Fund’s investment portfolio and distributed its shares. II. Plaintiffs allege employment by Wellington Equity Fund of the words “Wellington” and “Fund” is likely to cause confusion or mistake or to deceive the investing public in view of the prior user of “Wellington” and “Fund” by Wellington Fund since 1935. Defendants submit this is not so: “Wellington Fund and Wellington Equity Fund serve far different and well recognized basic needs or desires of investors. They are sold by investment dealers who are well aware of these differences and whose best interests are served by making known to the customer these differences in his own needs and desires and in the objectives of the Funds. The literature relating to the two Funds clearly differentiates between them. Actual confusion and likelihood of confusion of one Jfund with another in this situation is nonexist-ant. “Although Plaintiffs had the burden of proving actual confusion or likelihood of confusion of one fund with the other, they offered no evidence on that score. In view of the wide spread practice over many years of having several funds under the same sponsor with similar names, such evidence would have been readily available had there been confusion with any degree of frequency. Plaintiffs’ failure to produce evidence of confusion strongly corroborates the conclusion that there has been none. “The basis of the law of unfair competition and for the protection of trade-names is the avoidance of public deception and the prevention of one person trading on the goodwill of another person. As to the former, there will be no public deception or confusion between the two Funds. As to the latter, the manager and sponsor of Wellington Equity Fund is trading on its own goodwill and not that of any one else. The source of origin of the two Funds is identical.” Defendants recognize a corporation is entitled to protect its name and goodwill from encroachment by a subsequent user of a substantially similar trade name so long as there is a likelihood of public confusion or deception between the symbols of the two companies. The law of unfair competition embraces the law of trade name and trade-mark infringement. As observed by Nims in Unfair Competition and Trade-Marks, Yol. 1, at page 9: “The relationship between the law of trade-mark infringement and the law of unfair competition was explained by Judge Denison in 1912 thus: ‘The entire substantive law of trade-marks (excepting statutory provisions and construction) is a branch of the broader law of unfair competition. The ultimate offense always is that defendant has passed off his goods as and for those of the complainant.’ ” And the applicability of this area of the law to corporate names was noted in American Steel Foundries v. Robertson : “ * * * Whether the name of a corporation is to be regarded as a trade-mark, a trade-name or both, is not entirely clear under the decisions. To some extent the two terms overlap, but there is a difference more or less definitely recognized, which is, that, generally speaking, the former is applicable to the vendible commodity to which it is affixed, the latter to a business and its good will. * * * A corporate name seems to fall more appropriately into the latter class. But the precise difference is not often material, since the law affords protection against its appropriation in either view upon the same fundamental principles. The effect of assuming a corporate name by a corporation under the law of its creation is to exclusively appropriate that name. It is an element of the corporation’s existence. * * * And, as Judge Deady said in that case: “ ‘Any act which produces confusion or uncertainty concerning this name is well calculated to injuriously affect the identity and business of a corporation. And as a matter of fact, in some degree, at least, the natural and necessary consequence of the wrongful appropriation of a corporate name, is to injure the business, the rights of the corporation by destroying or confusing its identity.’ “The general doctrine is that equity not only will enjoin the appropriation and use of a trade-mark or trade-name, where it is completely identical with the name of the corporation, but will enjoin such appropriation and use where the resemblance is so close as to be likely to produce confusion as to such identity, to the injury of the corporation to which the name belongs. * # * ft Contrary to defendants’ assertions, plaintiffs have sustained their burden. As this Court recently observed in Old Charter Distillery Co. v. Continental Distilling Corp. an action prosecuted under the Lanham Act: “There is no need to seek a novel test for applying the statutory provisions for Judge Leahy in Tele-chron, Inc. v. Telicon Corp. enunciates an eclectic standard chosen from the prevailing authority: “ ‘The test of “colorable imitation in commerce” suggested by the statutory prohibition is not an analytical difference between marks of two competing products when placed in juxtaposition, but whether a sensory difference will be recognized by the ordinary purchaser when he does not have the opportunity for comparison — i. e. whether a deceptive similarity exists when average buyer is unable to distinguish defendant’s name or mark from his recollection of plaintiff’s mark. Short of this, resemblance constituting infringement is incapable of exact definition. * * * ’ “The test is essentially one to be applied by the court. Substantial similarity and not identity is all that is necessary to constitute an infringement. Proof of actual confusion is not required and when introduced is scrutinized carefully. Evidence of a negative character such as testimony by the trade or by consumers that they are not deceived and that the respective marks do not cause confusion, is of doubtful value. A side by side comparison of the marks is afforded little weight for the products bearing the marks are rarely displayed that way in the commercial community.” In the instant case, the proof in favor of plaintiffs’ position is overwhelming, notwithstanding defendants’ expert testimony that the names “Wellington Fund” and “Wellington Equity Fund” were not likely to be confused in the trade. The opinions of experts on the issue of likelihood of confusion is of questionable value. Subjecting these trade names to the traditional tests demonstrates conclusively the adoption of the name “Wellington Equity Fund” violates Wellington Fund’s interest in its trade name. “Wellington” is the dominant feature of the two trade names. Wellington Fund is widely advertised as “A Name To Remember When Investing”. It is not uncommon in the industry for shares to be purchased by telephone and as the evidence reveals dealers and investors when they buy by telephone sometimes simply ask for Wellington shares. Defendants’ expert Clark, Vice-President of Calvin Bullock, Ltd. testified in his opinion Wellington Equity Fund had a more successful underwriting by reason of its employing the name “Wellington”. Likewise, defendants’ expert Underhill, partner in the stock exchange firm of Arthur Wiesenberger & Company, publisher of the book “Investment Companies”, acknowledged that the underwriting of Wellington Equity Fund was made more successful by virtue of the existence and success of Wellington Fund. It is properly inferrable from the record that defendants intentionally adopted the name “Wellington Equity Fund” to capitalize on the excellent reputation Wellington Fund enjoys with the investing public. The Red Herring Prospectus heralding the creation of the new fund contained the unique Wellington Fund oval as did certain preliminary advertising. Plaintiffs apprised defendants of this situation, and as a consequence, Wellington Equity Fund no longer employs the oval. Prior to the inauguration of Wellington Equity Fund, President Morgan circularized certain key members of his management and sales team seeking their comments and suggestions as to possible names for the new fund. The name “Wellington Equity Fund, Inc.” was included in the list sent by Morgan to these persons. The replies received by Morgan were candid expressions of supposedly knowledgeable persons in the mutual fund industry uninfluenced by any prospect of litigation. For this reason excerpts of the replies set forth below are entitled to consideration: “ * * * [W] e certainly do not wish to use any name that would take away from the balanced fund.” Letter from Lawrence Connell, of Boston, Mass. “I don’t believe either Wellington Corp. or shares would sufficiently distinguish the new fund from Wellington Fund.” Letter signed “Marty". “ * * * I suggest that in order to avoid any confusion in the investor’s mind serious consideration be given to a title which does not use the Wellington name.” InterOffice Memorandum from Robert J. Ogilvie, dated June 20, 1958. “Might the use of Wellington Fund and the new Wellington (name) be confusing to investors in a combination advertisement ?” Inter-Office Memorandum from John Birmingham. “ * * * I would go along with you on Wellington Shares, except that we very often have dealers call in an order for ‘Wellington Shares’ and I am afraid there might be some confusion.” Danforth Field Co. San Francisco. “We already speak of the Wellington Corporation, Wellington Shares, and Wellington Investors; and if the new Fund were to be given any of these names it might be rather confusing, especially on the telephone, trying to determine whether the party had holdings in the Old or the New Fund. Therefore I believe any of the following — Wellington Equities, Wellington International, or Wellington General — can be used with the least confusion.” Joseph J. Gleason, Assistant Treasurer of Wellington Fund. “1. Would recommend that, if possible, name ‘Wellington’ be left out in order to avoid confusion with the present balanced fund. “2. If, for sales purposes, Wellington should be included, I like Wellington Equity Fund best.” Note signed ETM The Court is cognizant investment dealers are responsible for nearly all sales of investment funds, and that the law requires a prospectus be delivered to the potential purchaser at the point of sale. But as witness Shallcross testified, many persons who buy stock in investment companies do not read the prospectus. Further at pages 614-615 of the notes of testimony Shallcross recognizes that a very considerable segment of the investing public are not informed investors and that many investors are prone to rely heavily upon the particular dealer or representative who deals with them. The Court is mindful the stated aims of Wellington Fund differ in some respect from the objectives of Wellington Equity Fund. The two Funds do, however, directly compete at least to a limited extent, notwithstanding the testimony of defendants’ experts to the contrary. Common stocks comprise approximately 70% of Wellington Fund’s investments. The same securities appear in the portfolios of the two Funds. President Morgan in his examination acknowledged that over the years Wellington Fund has engaged in keen competition with Massachusetts Investors Trust, a stock fund. The declared basic goal of Wellington Equity Fund is listed as one of three stated principal objectives of Wellington Fund. Expert Shallcross on cross-examination stated that he would not recommend a balanced fund unless the prospective purchaser insisted. The pertinent questions and answers follow: (Shallcross) “ * * * I have a reservation about any balanced fund, not only Wellington. I personally won’t own bonds or preferred stocks, and I don’t like to recommend them to other people. If they want that sort of thing, if they are timid, if they feel that is their answer to being conservative and I can’t give them an education to what happens to money, then I am going to let them have the best balanced fund I can, and I think that is the case in which I recommend Wellington. “Q. Do you try to educate people away from balanced funds? A. I certainly do. Any chance I have to get them away from a balanced fund into a stock fund, I do it.” It is clearly this expert’s opinion that an investor with objectives best suited for a balanced fund can have his investment desires fulfilled by a stock fund. Even if these two Funds did not compete in any manner, Wellington Fund would still be entitled to have its name protected. In Standard Brands v. Smidler, the prior user of the trademark V-8 affixed to a vegetable juice was held deserving of protection against the use of the same symbol on dry vitamin tablets; for “if protection were denied, the owner would later be unable to use his old mark in the second user’s product field.” Judge Chase writing for the majority stated: “The protection which the law gives the owner of a trade-mark is not confined to the goods upon which it is, or has been, used by the owner of it but extends to products which would be reasonably thought by the buying public to come from the same source if sold under the same mark. (Citing cases.) His mark is the brand by which his goods can be identified, and when it is used by another the reputation of his mark, and consequently his own business reputation, are placed to that extent beyond his control. Unless the use by that other is upon goods so unlike his own or in territory so far from that which he has exploited that it will not create confusion it will be enjoined. * * * “The court below found on adequate evidence that the defendant’s use of ‘V-8’ was ‘likely to confuse purchasers or mislead them into the belief that defendant’s product is in fact manufactured by plaintiff.’ Products so closely related in use would naturally be thought to have the same source when they bear the same mark. They are as closely connected as the fountain pens and razor blades of the L. E. Waterman Co. case, supra, or the flashlights and locks of the Yale Electric Corporation case supra, if not more so. * * * “What has been said respecting infringement applies as well to the cause of action for unfair competition, which is but a somewhat broader phase of the same wrong. The gist of this action is the likelihood that the goods of the defendant will be passed off as those of the plaintiff. * * * “The court below did not find specifically that the trade-mark in suit was commonly known to be the plaintiff’s mark, but its ownership of it was proved and so was the likelihood that its use by the defendant would cause his goods to be purchased in the belief that their source was the same as that of the plaintiff’s vegetable juice cocktail. That made its use by the defendant unfair and unlawful competition with the plaintiff. It was enough that an appreciable number of prospective purchasers were likely to be thus misled. * * * And it is immaterial that vegetable juices and vitamin tablets do not directly compete with each other. * * * ” (Emphasis supplied.) Wellington Fund is a balanced Fund which means its portfolio consists of common stocks together with preferred stocks and bonds, and is consequently conservative in outlook. Expert Shall-cross in his testimony painted a dismal future for balanced funds in view of their insistence to retain bonds and preferred stocks in their portfolios. He testified, “today the common stock type of Fund I think is the thing.” And more important he observed, “there has not been, so far as I know, a new balanced fund set up for at least five years.” Shall-cross concluded from the aforementioned observations: “I think the conclusion is this: That We