The tension between state laws and federal law and the constantly evolving state regulatory frameworks make the cannabis industry the most interesting area in intellectual property right now, in this lawyer’s opinion.
HOW DO CANNABIS COMPANIES PROTECT THEIR INTELLECTUAL PROPERTY?
One of the most critical challenges a cannabis business faces is how to capture goodwill from its brands. How can these companies protect their brands with the law in constant flux? Can they register trademarks (a trademark is essentially a legal concept for a brand) with the USPTO? Can they license them to others? Can they serve as a licensee for other brands for marijuana-related products and services? What about licensing trade secrets (a trade secret is essentially a non-registered asset comprised of proprietary information or technology that has commercial value)? Does the license agreement have to be different in each state it applies to? Will it hold up over time? Is it vulnerable to invalidation by courts?
WHERE DO TRADEMARK RIGHTS COME FROM?
To answer the trademark question (most marijuana licensing issues are going to involve trademarks), we must start with where trademark rights come from. Generally, you can obtain trademark rights in three ways: 1) federal registration, 2) lawful use in commerce of an unregistered trademark (known as common law rights), and 3) state registration. In most industries, federal registration is the most important source of rights by far. State registration may even be counterproductive if not merely a waste of time, and failing to register and relying on common law rights is folly. However, most industries don’t have to reckon with the Controlled Substances Act (“CSA”).
WHY DOES THE CSA PLACE A GIANT CLOUD OF SMOKE OVER THE WHOLE INDUSTRY?
The CSA prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations, at the federal level.
In addition, the CSA makes it unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under [the CSA].” 21 U.S.C. §863.
So, in essence, you can’t get a federal trademark for marijuana or most marijuana-related products and services in most cases because they violate the CSA, regardless of whether they are legal in certain states.
Even when these products and services are “legal”, the regulatory framework differs from state to state, varies widely, and is constantly changing. So how do you get meaningful protection? And how do you get anything that may be subject to a license? Will that license hold up over time or in different states or will it ultimately be worthless?
There is no easy answer to these questions, and I predict there won’t be for a long time. But some strategies are better than others…
WHAT BRAND PROTECTION STRATEGIES SHOULD THOSE IN CANNABIS INDUSTRY CONSIDER?
One of the smartest strategies for those in the cannabis industry is to seek out state trademark protection in all the states they are doing business. If you can get them, fantastic, but you should also be aware that state trademarks are notoriously not subject to the same scrutiny and rigorous examination as federal trademarks, and the drawback to such lack of scrutiny is that it may provide a false sense of security in some cases when it comes to later licensing or enforcement of a brand.
Another savvy strategy is to seek protection for ancillary goods and services which put you in better position when the CSA is (inevitably? perhaps) modified or eliminated and a later administration takes steps to legalize marijuana or other controlled substances. For instance, apparel is a good starting point if you have a fun, catchy, design-friendly or otherwise memorable brand. Information services can also be registered if they don’t violate provisions of the CSA.
One of the things I would like to stress (and will do this often on the blog) is the principle that prior registration is a huge benefit if you ever have to enforce your brand rights, because courts want to see that you thought enough of an IP asset to spend resources (money, time) to protect it before there was a problem.
Obviously, a good lawyer is essential to implement these strategies, as they are very nuanced.
Also, what about licensing trademark rights? Again, super complex, and that is what makes it interesting. You’ll be dealing with issues that just don’t exist in many other industries and those issues will vary state to state.
INTERESTING STATE LEGISLATION ON TAP
Would you believe that you can’t even get a state trademark in all states where marijuana is legal? It’s true.
A couple of areas of legislation that I am paying close attention to are 1) California’s attempt to finally permit state trademark registration for marijuana (that’s right, they didn’t permit this as of the end of last year), and 2) the IP implications of Washington’s recent marijuana legal framework overhaul.
Regarding the latter, On May 16, Washington governor Jay Inslee signed a massive marijuana bill (S.B. 5131) which changes many things about the state’s marijuana policy, and has (among other things) enormous consequences for intellectual property in the cannabis and marijuana industry.
Among the 38 pages of legislation is some interesting IP (trademark and trade secret) clauses. The new Section 16 reads as follows (emphasis mine):
A licensed marijuana business may enter into a licensing agreement, or consulting contract, with any individual, partnership, employee cooperative, association, nonprofit corporation, or corporation, for:
a) Any goods or services that are registered as a trademark under federal law or under chapter 19.77 RCW;
b) Any unregistered trademark, trade name, or trade dress; or
c) Any trade secret, technology, or proprietary information used to manufacture a cannabis product or used to provide a service related to a marijuana business,
So, basically, the way I read that language is that a marijuana business licensed in Washington state may serve as licensor or licensee for all of: 1) federally registered trademarks, 2) Washington state registered trademarks, 3) any unregistered trademarks (which don’t need to be lawful?), and 4) any trade secret.
Awesome. That covers a lot of things. Of note, the clause after this one requires that all such agreements be disclosed to the state liquor and cannabis board. OK, so the new legislation seems to offer pretty clear guidelines and a safe framework for licensing deals between two Washington licensed entities that don’t involve royalties, but it doesn’t address things such as quality control (typically an essential component of a federal trademark licensing scheme), royalties, and implication of deals involving out of state licensors or licensees. Also, what are “common law rights” in this context – are they preempted by federal illegality?
Such is the current state of intellectual property protection and licensing… a lot of questions, and we can only make reasonable guesses as to most of the answers.
Also, nothing in this article should be construed as legal advice… in case you were wondering!