High Risk, High Reward: An Overview of Navigating IP Rights in the Green Rush
- Summer 2017 (snippets)
- Snippets
The legal U.S. cannabis market, which includes medicinal and recreational sales, is booming. Last year alone, the industry accumulated an estimated $7.2 billion in revenue, and that number is projected to grow to $21.2 billion by 2021.[1] Currently, twenty-nine states and D.C. have medical cannabis laws in place, eight of which (and D.C.) have legalized recreational use as well.[2] With cannabis policy reform and legalization continuing to gain momentum nationwide and internationally, the “Green Rush” is well underway. For companies and entrepreneurs entering this industry, comprehensive intellectual property (“IP”) protection is vital for their developing cannabis brands and inventions.
However, because cannabis remains illegal under federal law,[3] companies seeking federal IP protection (namely under copyright, trademark, and patent laws) face challenges and amorphous legal boundaries that are unique to this industry. For example, despite the current federal prohibition and criminality of cannabis, the U.S. federal government, through the U.S. Patent and Trademark Office (“USPTO”) and the Copyright Office, has granted cannabis-related trademarks, copyrights, and patents in the past. However, determining what IP protection exists currently for those seeking to ride the tides of the Green Rush presents a fundamentally different and challenging set of questions. Thus, here we will discuss the status of federal and state IP laws and enforcement options available for these pioneer canna-businesses.
Current Canna-Trademark Rights
A trademark is a word, phrase, symbol, or design that distinguishes the source of goods of one company from another company; and a service mark is the same as applied to services instead of goods.[4] Building a strong brand is critical to any company, and federal trademark registration provides potentially the broadest, and most long-term, protection.[5] And, like many other industries, the cannabis industry relies on brand names to promote and distinguish their goods and services from other companies emerging in the same spaces.[6] However, under current U.S. federal trademark law, the USPTO has refused to register trademarks on cannabis goods or services, particularly those in the context of the cannabis product itself (e.g., a particular strain of leafy cannabis). That said, some further details surrounding the path to this USPTO policy are worth noting.
First, in the context of federal trademark registration, beginning in 2010, the USPTO invited applicants to apply for federal trademark registrations on cannabis goods and services by creating a new entry in its Acceptable Identification of Goods and Services Manual for: Class 5: “Processed plant matter for medicinal purposes, namely medical marijuana.”[7] Within a matter of months, and countless applications later, a spokesperson for the USPTO, Peter Pappas, noted that the newly articulated class “raise[d] examination issues . . . was a mistake and [that the USPTO] ha[d] removed it.”[8]
In more recent years, the USPTO clarified that the basis for denying federal trademarks in connection with many cannabis-related goods and services is due to the lack of any lawful uses of the applied for marks in commerce, as expressly required by the Lanham Act.[9] And, both the USPTO and the Trademark Trial and Appeal Board have consistently applied this prohibition.[10] Further, because cannabis is still illegal under the Controlled Substances Act (“CSA”), the Trademark Manual of Examining Procedure is uncomplicated and unequivocal in this regard, even if the applicant does not state that the use is illegal under federal law:
[E]vidence indicating that the identified goods or services involve the sale or transportation of a controlled substance or drug paraphernalia in violation of the Controlled Substances Act (“CSA”), 21 U.S.C. §§801-971, would be a basis for issuing an inquiry or refusal. . . . Note that, regardless of state law, marijuana and its psychoactive component, THC, remain Schedule I controlled substances under federal law and are subject to the CSA’s prohibitions.[11]
But, how close to the line can an applicant go to obtain federal trademark protection without stepping into prohibited activity under the CSA? Again, filing for trademarks on cannabis products themselves is clearly too far at this point.[12] However, cannabis-related goods and services are a closer call.
On one end, there are products and services that may be labeled “paraphernalia,” for which the USPTO has also refused trademarks and service marks – as they arguably fall within the definition of “illegal drug paraphernalia” under the CSA (e.g., vaporizing devices for cannabis).[13] On the other end, federal trademarks and service marks have been granted in the context of ancillary products and services (e.g., cannabis apparel companies, and informational services/cannabis networking organizations).[14] Regardless, applicants should be prepared to controvert USPTO rejections and readily show how the cannabis-related mark does not violate the CSA – no matter how strained the nexus between the goods or services offered by the applicant to the currently illegal product may be.[15]
But in spite of having to walk the fine line of illegality with the USPTO for federal trademarks, all is not lost for cannabis companies seeking trademark protection. Specifically, because many of the states that have legalized cannabis in some form have begun instituting statutory bases for registering cannabis-related trademarks and service marks under state law, state trademark rights may currently provide the most fruitful ground for canna-trademark rights.[16]
Current Canna-Copyright Rights
Despite the USPTO’s position on federal trademarks, cannabis companies are not foreclosed from obtaining federal copyright protection for their “original works of authorship,” which can include literary, dramatic, musical, visual, and other intellectual works.[17] Notably, the Copyright Act of 1976 does not contain the same express prohibition under the CSA as the Lanham Act. Moreover, because copyright applications are reviewed and granted by a completely separate entity from the USPTO – the U.S. Copyright Office (which has not, to date, issued any prohibition from registering cannabis-related copyrights) – the same concerns simply do not exist for copyright protection.
Thus, copyright protection seems to be on the table currently for affording cannabis companies options for protecting logos and visual designs associated with their brand under federal law.[18] As copyright applications are inexpensive to apply for and prosecute as compared to patents (and even trademarks/service marks), cannabis brand owners should carefully consider looking into protecting their branded literary, dramatic, musical, visual, and other intellectual works in connection with useful articles (e.g., t-shirts, accessories, etc.).
Current Canna-Patent Rights
Patents are granted by the USPTO on “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof,” and confer the right to exclude others from making, using, and selling the invention in the U.S.[19] And, despite refusing cannabis trademarks, the USPTO has granted all types of patents (utility, design, and plant) for cannabis-related inventions.[20] Notably, the patent statute does not have the same prohibition on illegal activity as the Lanham Act.
However, U.S. courts have held that an invention is not useful, and is therefore ineligible for patent protection, if it is “frivolous or injurious to the well-being, good policy, or sound morals of society.”[21] As a result, a number of patents have been invalidated based on being immoral or offensive, such as patents related to gambling or lottery devices,[22] and inventions designed to deceive and defraud the public.[23] However, over the years, the courts and the USPTO have pulled back from this concept of moral utility.
For example, the USPTO Board of Appeals has stated that “we cannot find any basis in 35 USC 101 or related sections which justify a conclusion that inventions which are useful only for gambling ipso facto are void of patentable utility” and that “this Office should not be the agency which seeks to enforce a standard of morality with respect to gambling, by refusing, on the ground of lack of patentable utility, to grant a patent on a game of chance.”[24] Further, the Federal Circuit has noted that “the principle that inventions are invalid if they are principally designed to serve immoral or illegal purposes has not been applied broadly in recent years.”[25] And the USPTO’s Manual of Patent Examining Procedure (MPEP) now states that “[a] rejection under 35 U.S.C. 101 for lack of utility should not be based on grounds that the invention is frivolous, fraudulent or against public policy.”[26]
Nevertheless, while the courts and the USPTO continue to move away from the application of a public policy doctrine, some are of the opinion that such a doctrine still exists, only in a narrower form.[27] However, these same commentators would also note that “courts should not apply subjective ideas of honesty and morality” to interpret the bounds of patent-eligible subject matter; but instead “should apply a test which will not penalize an inventor who may be prescient enough to be anticipating basic needs of a society changed by forces yet unrecognized by the general public.”[28]
Whether this public policy doctrine still exists and whether courts will apply it to invalidate cannabis-related patents remains to be seen, as cannabis-related patents have yet to be challenged on such grounds. Until then, the USPTO continues to examine patent applications and issue patents on cannabis-related inventions free of § 101 concerns, such that canna-business owners should consider pursuing patent protection for their intellectual property.
Current patentable subject matter under § 101 for cannabis inventions seems to include, at least: methods of treatment, methods of growing cannabis plants, THC extraction techniques, consumption methods and devices, cannabis-infused edible products, and cannabis strains themselves.[29] And while the vast majority of these applied-for and granted patents are utility patents, plant patents are also being applied for and granted.[30]
Further, even though the legalization of medicinal and recreational cannabis use is a recent development in many states, patenting cannabis-related inventions is not a new concept; cannabis-related patent applications were being filed as early as the 1970s.[31] In fact, even the federal government itself owns a patent related to a method of treating oxidative stress by administering a (nonpsychoactive) cannabinoid.[32] To quantify, currently there are at least 300 granted patents and over 500 published applications involving cannabis-related inventions.[33] And while some in the industry may be opposed to patenting cannabis-related inventions, particularly strains, the reality is that the “race to the Patent Office” has already begun.
Canna-IP Enforcement and Benefits
Even if IP protection exists for canna-business owners, the question remains: What benefit do these property rights really bestow to the owner? A few points are worth considering.
First, while rare, there are a small number of cannabis related patent infringement cases popping up in federal courts; but these cases have settled early in litigation.[34] The asserted patents in these cases did not necessarily cover cannabis-related technology, but were being enforced against various companies developing cannabis products.[35] Of particular note, however, recently an infringement complaint was filed in the Eastern District of Pennsylvania asserting patents covering intravenous anesthetics which, in some embodiments, include cannabinoids.[36] And as the markets and protectable property interests continue to rapidly grow, similar cases enforcing cannabis-related patents will likely become increasingly popular and prevalent.
Second, even if cannabis companies may feel limited in their current ability to fully enforce their secured IP rights, the tangible and concrete property interest in these rights remain. For example, patents and copyrights can be, and often are, used as instruments for debt and equity financing – often leveraged as collateral for securing lines of credit – whether by private venture capitalists or established institutions. Additionally, because trademarks potentially provide perpetual rights, they may add significant value to a company when evaluating a brand’s worth for purposes of executing an acquisition or obtaining investments or other financing.
Conclusion
So, for those canna-businesses seeking IP protection (startups and large entities alike), the distilled advice seems pretty simple: protect your IP rights early, often, and aggressively.
Put another way, as the single hottest emerging market in popular culture, the potential for IP rights surrounding the Green Rush presents a seemingly infinite forecast of rewards for those adventurous and informed enough to navigate it intelligently.[37] Unlike other emerging markets, because the law is not exceedingly clear in this space, those attempting to achieve long-term success will have to put particular emphasis on the latter—being informed. And as the stakes keep growing,[38] having someone in your corner to help inform your next steps might help alleviate the high risks you face along the way.
[1] Debra Borchardt, Marijuana Industry Projected To Create More Jobs Than Manufacturing By 2020, Forbes (Feb. 22, 2017, 10:51 AM), available at https://www.forbes.com/sites/debraborchardt/2017/02/22/
marijuana-industry-projected-to-create-more-jobs-than-manufacturing-by-2020/#c3520fe3fa92; Debra Borchardt, Marijuana Sales Totaled $6.7 Billion In 2016, Forbes (Jan. 3, 2017, 9:00 AM), available at https://www.forbes.com/sites/debraborchardt/2017/01/03/
marijuana-sales-totaled-6-7-billion-in-2016/#2d35e14375e3.
[2] These eight states include Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington. See Review of State Laws to Regulate Marijuana, MPP, https://www.mpp.org/issues/legalization/regulationlaws/ (last visited Aug. 11, 2017). Although cannabis is legal in DC, Congress has currently blocked the recreational commercial sale. See 2017 Marijuana Policy Reform Legislation, MPP, https://www.mpp.org/states/
key-marijuana-policy-reform/ (last updated July 31, 2017).
[3] See 21 U.S.C. § 812(b)(1). The Obama administration issued a memorandum in 2013 that directed federal prosecutors to avoid criminally prosecuting cannabis businesses that are compliant with state laws. See Memorandum from James M. Cole, Deputy Attorney General, Guidance Regarding Marijuana Enforcement (Aug. 29, 2013), available at https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf. So far, this safe-harbor policy has remained intact under the Trump administration.
[4] See 15 U.S.C. § 1127.
[5] The benefits of federal registration include: nationwide protection, federal jurisdiction for enforcement, national notice, customs protection, presumption of validity, presumption of ownership, and the right to use the ® symbol. Additionally, unlike other IP rights, trademarks and service marks are not term limited as they provide perpetual protection for brands as long as the brand is used in connection with the goods and/or services of the brand owner.
[6] For example, if a consumer is looking to buy a particular strain with one or more particular medicinal effects, it is incredibly important for that consumer to know whether they are purchasing a sativa, indica, or hybrid stain, in what dose, and in what form (e.g., smokable leafy cannabis versus a concentrated edible) depending on what ailments are being treated and/or the effects sought. See, e.g., Kevin P. Hill, MD, MHS, Medical Marijuana for Treatment of Chronic Pain and Other Medical and Psychiatric Problems: A Clinical Review, 313 Journal of the American Medical Association 2474, 2481-82 (2015).
[7] See Justin Scheck, Patent Office Raises High Hopes, Then Snuffs Them Out, Wall Street Journal (July 19, 2010), available at http://www.wsj.com/articles/
SB10001424052748704682604575368783687129488.
[8] Id.
[9] See, e.g., 15 U.S.C. §§ 1051, 1127.
[10] In re Brown, 119 U.S.P.Q.2d 1350, 1351 (T.T.A.B. 2016) (noting that the USPTO and TTAB have “consistently held that, to qualify for a federal service mark [or trademark] registration, the use of a mark in commerce must be ‘lawful’” and affirming the refusal of a mark for the sale of cannabis-based herbs based on lack of a lawful use in commerce).
[11] See TMEP § 907 (citing 21 C.F.R. § 1308.11; U.S. Const. art. VI, cl. 2; Gonzales v. Raich, 545 U.S. 1, 27, 29 (2005); U.S. v. Oakland Cannabis Buyers’ Coop., 532 U.S. 483, 491 (2001); In re JJ206, LLC, 120 U.S.P.Q.2d at 1571; In re Brown, 119 USPQ2d at 1352).
[12] Supra notes 7-11.
[13] See In re JJ206, LLC, dba JuJu Joints, Serial Nos. 86474701 & 86236122, (T.T.A.B. 2016) (refusing to register the marks “POWERED BY JUJU” and “JUJU JOINTS” on the principal register, related to cannabis vaporizing devices, for constituting illegal drug paraphernalia under the CSA).
[14] Historically, ancillary products and services concerning cannabis have also been denied by the USPTO, but not in the context of illegality under the CSA. Instead, they have been denied under Section 2(a) of the Lanham Act, commonly known as the “disparagement clause,” which prohibits the registration of a mark that “[c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” In light of the Supreme Court’s recent decision in Matal v. Tam, however, this result seems unlikely moving forward. Specifically, the Court in Tam held that Section 2(a) of the Lanham Act violates the Free Speech Clause of the First Amendment, as “[i]t offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.” 137 S. Ct. 1744, 1751 (2017).
[15] See TMEP §§ 907, 814. In short, until cannabis is declassified as a Schedule I narcotic, the USPTO will likely continue to refuse cannabis-related trademarks and service marks, at least in the first instance.
[16] For example, in some states, state statutory law provides protection for cannabis trade- and service marks—the most recent and noteworthy of which was California (see A.B. 64, 2017 Leg., Reg. Sess. (Ca. 2017) (authorizing state trademark protection beginning January 1, 2018)). Further, states like Oregon, Washington, Colorado, and Illinois seem to be taking similar approaches, but with varying degrees of legal clarity. Regardless, these state trademark registrations may provide an added benefit for illustrating uses in commerce, including first uses, for more expansive trademark registrations moving forward.
[17] See 17 U.S.C. § 102(a).
[18] Furthermore, this assertion seems even stronger in light of the Supreme Court’s recent decision in Star Athletica, L.L.C. v. Varsity Brands, Inc. in which the Supreme Court delivered a rare victory for many intellectual property (IP) owners by holding that artistic features of a claimed design may be eligible for copyright protection even as applied to a useful article if the features: “can be perceived as a two- or three-dimensional work of art separate from the useful article;” and “would qualify as a protectable pictorial, graphic, or sculptural work either on its own or in some other medium if imagined separately from the useful article.” 137 S. Ct. 1002, 1016 (2017).
[19] See 35 U.S.C. §§ 101 and 154.
[20] See, e.g., U.S. Patent Nos. 9,370,164 (utility), D789,598 (design), and PP27,475 (plant).
[21] Lowell v. Lewis, 15 F. Cas. 1018, 1019 (C.C.D. Mass. 1817).
[22] See, e.g., Brewer v. Lichtenstein, 278 F. 512 (7th Cir. 1922); Schultze v. Holtz, 82 F. 448 (C.C.N.D. Cal. 1897); Reliance Novelty Co. v. Dworzek, 80 F. 902 (C.C.N.D. Cal. 1897); Nat’l Automatic Device Co. v. Lloyd, 40 F. 89 (C.C.N.D. Ill. 1889).
[23] See, e.g., Rickard v. Du Bon, 103 F. 868 (2d Cir. 1900).
[24] Ex Parte Murphy, 200 U.S.P.Q. (BNA) ¶ 801 (Apr. 29, 1977).
[25] Juicy Whip, Inc. v. Orange Bang, Inc., 185 F.3d 1364, 1366–67 (Fed. Cir. 1999).
[26] MPEP § 706.03(a).
[27] See, e.g., 1-4 Chisum on Patents § 4.03 (“A patent will be withheld only if the invention cannot be used for any honest and moral purpose.”).
[28] Id.
[29] See, e.g., U.S. Patent Nos. 9,717,683 (covering methods of treatment), 9,642,317 (covering methods of growing cannabis plants), 9,480,647 (covering cannabis-infused edible products), 9,408,986 (covering cannabis consumption methods and devices), 9,370,164 (covering cannabis strains), and 8,895,078 (covering methods of THC extraction).
[30] In fact, the USPTO recently issued the first plant patent on December 20, 2016, PP27,475, titled “Cannabis plant named ‘Ecuadorian Sativa.’”
[31] See, e.g., U.S. Patent No. 4,219,032 “Smoking Device,” which was filed on November 30, 1977 and issued as a patent on August 26, 1980.
[32] See U.S. Patent No. 6,630,507 (issued October 7, 2003, and directed to a method of treating oxidative stress by administering a nonpsychoactive cannabinoid, and which is assigned to the U.S. Dept. of Health and Human Services.)
[33] These numbers are conservative estimates based on searches for patents and applications containing the term “cannabis” or “cannabinoid” in the title itself.
[34] See, e.g., A&A Global Imports, Inc. v. Central Bag & Burlap Co., No. CACD-2-17-CV-03442 (C.D. Cal. 2017); Medbox, Inc. v. Dispenselabs, LLC, No. AZD-2-13-CV-00262 (D. Ariz. 2013).
[35] See e.g., Complaint, A&A Global Imports, Inc. v. Central Bag & Burlap Co., No. CACD-2-17-CV-03442 (C.D. Cal. May 5, 2017) (involving a design patent directed to a plastic bag); Complaint, Medbox, Inc. v. Dispenselabs, LLC, No. AZD-2-13-CV-00262 (D. Ariz. Feb. 6, 2013) (involving a patent directed to a vending machine to dispense herbal medications and prescription medicines); First Amended Complaint, Udoxi Scientific, LLC v. Precision Extraction Corp., No. ORD-3-16-CV-01062 (D. Or. Oct. 11, 2016) (involving patents directed to systems
and methods for extracting solute from source materials).
[36] Complaint, Mallinckrodt IP v. B. Braun Medical, Inc., No. PAED-5-17-CV-02474 (E.D. Pa. June 1, 2017).
[37] As the old adage goes: “Fortune favors the bold.” Latin proverb.
[38] Compare supra note 1 with Joseph Mulkerin, Jeff Sessions Draws New Battle Lines for War on Drugs: Attorney general sets his sights on medical marijuana crackdown, The Observer (June 23, 2017, 6:45 AM), available at http://observer.com/2017/06/jeff-sessions-war-on-drugs-medical-marijuana/.
Margot M. Wilson is an MBHB 2017 summer associate.
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