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One of the issues that most commonly arises with new clients of mine is that they confuse their business trade names with trademarks. Specifically, many companies incorrectly assume that once they have chosen a name and registered that name with the state of incorporation, they have unlimited rights to that name in connection with their business, including usage as a brand.

This is a dangerous assumption because registering a trade name does not confer any trademark rights to the registrant per se.

WHAT IS A TRADE NAME AND WHEN CAN IT BE USED?

A trade name is the name under which an entity does business at the state level. Rights associated with “doing business” include the right to use a trade name for banking, billing, business identification (e.g. yellow pages) and tax purposes, among others.

Typically there are two types of names a company may use for these purposes:

  • The name provided to the state upon registration as an entity (as an LLC or Corporation, for example).
  • An “assumed” name, which must be registered with states separately from the registered name.

Selecting a trade name is not a complex process and is not typically subject to rigorous examination by states when approving these names. To the extent that state governments use any criteria at all to reject a name, it is often a matter of ensuring that the business does not misrepresent its industry (e.g. a grocery store using “bank” in the name) or duplicate an existing entity in that state. While procedures vary from state to state, the key point is that state governments never evaluate a trade name as a brand.

HOW CAN RELIANCE ON TRADE NAMES (IN LIEU OF REGISTERING TRADEMARKS) CAUSE LEGAL TROUBLE FOR A BUSINESS?

Some businesses assume that a registered name gives them the right to use that name for *any* purpose related to the business, and thus it creates a false sense of security. However, when the business is using its trade name to identify its products or services, the trade name is functioning as a trademark, and confusion with (or dilution of) existing trademarks must be considered. A business has a legal right to use a name as a trademark only to the extent that it does not infringe upon the existing trademark rights of others.

WHEN DOES A TRADE NAME INFRINGE UPON A TRADEMARK?

Infringement can be subtle, and is not always obvious! If your name is sufficiently similar to a registered trademark such that it causes “a likelihood of customer confusion” (a legal term of art for a sophisticated multi-part test), you might have to change your business name, spend money on corrective advertising or even pay for the lost profits of the holder of the registered mark, among other things. In fact, damages can occur regardless of registration in some cases.

HOW TO STEER CLEAR OF TRADEMARK INFRINGEMENT?

A trademark is the legal concept for a brand. An experienced and skilled trademark attorney can help you steer clear of infringement before it takes a costly toll on your business by researching the brand for potential conflicts and other bars to use and registering the brand as a trademark with the appropriate entities (state, federal and international, as applicable). Registering your brands as trademarks (whether they be product names, logos or other devices that identify and distinguish goods and services) can discourage other from using similar trademarks and give you a leg up in litigation in the unfortunate event of a competing brand treading too closely to yours.

REGISTER A TRADEMARK

 

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!

My clients are often confused about what their options are if their trademark is deemed “merely” descriptive by the trademark examiner.

Key Point #1: “Merely” descriptive is a legal term of art.

One of the reasons your trademark application can be rejected is because the trademark is “merely” descriptive of the goods or services. This is a legal term of art (meaning good legal argument can sometimes avoid such a characterization), but a trademark is deemed to be merely descriptive when it describes an ingredient, quality, characteristic, function, feature, purpose or use of the goods or services that it functions as a trademark for.

Key Point #2: Legal strategies for avoiding this characterization.

Here are a few principles that help you avoid such a characterization, which prevents registration on the principal trademark register.

Key Point #3: The supplemental register has benefits as well

And if you can’t win an argument that your trademark is distinctive, you can still register your trademark on something called the “Supplemental Register”, which is sort of like purgatory for trademarks. It has a few important benefits, namely:

  • You can use the ® symbol for the trademark
  • The registration is protected against later registration by another confusingly similar trademark
  • You can bring an action for trademark infringement in federal court (although you probably will not have a strong claim)
  • The registration affords easier international registration

So it is not all gloom and doom if your trademark gets rejected for descriptiveness, even though a federal trademark registration on the principal register is a lot more valuable than one on the supplemental register. Working with a skilled trademark lawyer – like me – can often make all the difference in this determination as well as what your brand strategy should be.

Rarely a week goes by that one of my trademark clients doesn’t ask me about strange letters or emails they get related to their trademarks. My inaugural blog post summarizes my thoughts on this correspondence.

Key Point #1: If you are my client, I am the only person you should ever have to pay for trademark work.

I usually incorporate filing fees into my fees – sometimes they are broken out in my invoices so you know what they are and sometimes not. While you shouldn’t rely on me for renewals (I have to say that), the odds are good that I will try to contact you about them. A million other peddlers of dubious services will also contact you – especially following a registration and when trademarks are up for renewal (following years five, nine and nineteen after registration, as it stands right now).

Key Point #2: Trademark scams are so prolific because your contact information and certain other information about your intellectual property becomes public information when you file for a trademark, and widespread confusion about the trademark process is fertile territory for scammers to exploit.

 

How do these scammers get your information? The federal trademark office publishes information about trademarks (and their owners) through the Official Gazette for Trademarks (OG), which comes out each Tuesday and contains bibliographic information and a representative drawing for each trademark published, along with a list of cancelled and renewed registrations. The OG is available via PDF for the most recent fifty-two issues. Information about each trademark (or applied for trademark) may also be found in the government’s comprehensive, searchable, public trademark database, which is updated daily and accessible directly from the home page of the trademark office web site.

As a result of the public nature of trademarks, when your attorney applies for a federal trademark, contact information must be provided that allows anybody (of particular interest, any enterprising scam artist) to contact you easily, armed with a lot of information about your brands and the knowledge that you have already paid some money to protect them.

Key Point #3: Trademark scams are always evolving and get more and more sophisticated, but there are some common types.

Scams arise via both snail mail and e-mail, as typically enough information will be available for either. Telephone scams are less common these days, but this is only because these scams seem to work better in writing.

Most of the “scammy” offers you will receive as a result of applying for or registering a federal trademark are in the grey area of not technically fraudulent.  A common example is the offer to be placed in some sort of alternate brand or domain or intellectual property registry. While there is nothing illegal per se about soliciting for a database or registry, these offers are often marketed in such a way to mimic “official” registration of some sort by cloaking the offer with official sounding names and associating it with symbols such as an American flag and banking on your ignorance to pay up. They often looks like invoices as well.

In addition to these database-type scams, quasi-legal service providers that I will not dignify by naming will also contact you to try to lure you away from using a competent attorney to do your trademark work. They have also gotten better with their marketing efforts, and often market “review by an attorney”, but let me pose a hypothetical for you – do you think the attorneys who are good at this type of work would associate themselves with such a low grade service? Lawyers add value because legal problems are nuanced. Most of these services are basically slickly marketed, overpriced form filling services, in this grizzled lawyer’s opinion.

On to specific patterns of scams that are less of a grey area.

The most common form of scam I see these days hails from Asia, and usually originates via email.The narrative changes over time, but mostly revolves around a notice that someone in an Asia country (and I see this originate from many Asian countries) is buying up your domain names (yourtrademark.biz, yourtrademark.cn, etc.) and/or is attempting to register your trademark in various foreign countries. If you engage the scammer, you will often be asked to provide credit card information to purchase services to stop this behavior.

Don’t do it.

These inquiries could be phishing scams, where your credit card information is used illegally for other stuff. They could also be trademark extortion schemes, whereby engaging the scammers actually incentivizes them to buy some domains, only to sell them back to you at grossly inflated prices. Either way, I don’t see much upside to engaging anybody who wants to discuss your trademarks except for an attorney you trust. Are these ever legitimate legal issues? Maybe? I am not saying that there will never be a case where foreign shenanigans happen that exploit your trademark rights in a way that you should legitimately be paying a professional to help, but I don’t know if I would ever engage that likely huckster contacting you out of the blue.

The Final Takeaway

In my opinion, engaging a trusted trademark lawyer is pretty much the only sensible circumstance to pay money for something related to your registered trademark. Legitimate expenses and services include infringement letters, monitoring of competing trademarks, international trademark registrations, and trademark renewals. And good attorneys are not going to sell you stuff you don’t need, or confuse you.

Please let me know if this article was helpful and feel free to share your own trademark horror stories by contacting me at danny@veritrademark.com.