The Cannabis Industry and its Intellectual Property: a 2020 Legal Review and Update of Relevant Statues and Cases

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The Cannabis Industry and its Intellectual Property, a 2020 Legal Review and Update of Relevant Statues and Cases: What Rights for Protecting Cannabis Innovations and Branding?

To succeed in the post Covid-19 new economy, technology companies must be able to raise capital, attract management talent, and protect their brands and intellectual property assets.  Early protection of intellectual property is a critical component of any business seeking to secure a competitive advantage in the market.  No industry is more complex in achieving these results than the cannabis space. Efforts to secure IP rights are strongly influenced by a complicated web of conflicting federal and state law and regulations.  Although recent efforts for legalization has recently occurred in a number of states, along with the growth of medical cannabis in many more markets, cannabis remains a Schedule 1 drug under the Controlled Substances Act, and possession of cannabis remains prohibited under federal law.   21 U.S.C. § 801 et. seq. Further, the United States Patent and Trademark Office (“USPTO”) will not register a federal trademark for cannabis products and services that “touch” the cannabis plant (i.e. cultivate, manufacture or dispense cannabis products), except for those products that have a dry weight basis of less than or equal to 0.3 % THC content, if filed with the USPTO after 12/20/2018.  See 2018 Farm Bill cited below.  In addition, certain CBD infused products, including human foods, beverages, dietary supplements, and animal foods, despite meeting the definition above, must nonetheless, meet FDA approval if the products are promoted for therapeutic uses and treating diseases or medical disorders.  See Hemp Production and the 2018 Farm Bill – 07/25/2019 | FDA, https://www.Fda.gov/…/hemp-production-and-2018-farm-bill-0725201.   So, overall, the message is proceed with caution, but you MUST proceed forward with an active intellectual property program for protection of your cannabis products and services to avoid becoming roadkill in the competitive landscape.

Despite limitations and conflicting legal and regulatory messages found in the cannabis space, there are substantial opportunities to obtain protection for your cannabis branding and innovations now and in the future.  I will now briefly review a number of these areas of opportunity.  You should consult your attorney for more details on the specifics of your situation.  In general, I will organize the discussion by the primary areas of intellectual property law, including trademark, copyright, trade secrets, and patent protection.

Trademark Protection

A trademark is any visible indication that goods or services come from a given source such as a brand or the trade name of a product or service.  Trademarks are available for any word, name, symbol, or device used in commerce with associated goods or services. Trademarks function as a source identifier and provide a consumer with the ability to distinguish genuine goods associated with a registered mark from those goods that attempt to unfairly copy the genuine goods and therefore infringe the registered mark. See § 32(1) of the Lanham Act. 15 U.S.C. § 1114, Gruner + Jahr, 991 F.2d at 1077 (1993).  As a result, trademark infringement is based on the likelihood of consumer confusion and depending on the jurisdiction, which considers several factors, including: the strength of the registered mark, similarities between the marks, competitive proximity, likelihood of competitive proximity and overlapping markets for goods, actual confusion on the part of purchasers, the alleged infringer’s good faith, relative quality of the alleged infringer’s product, and the sophistication of the buyers in the relevant market.   Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2 Cir.).  To be registrable, a mark owner should obtain a clearance search from a trademark attorney or search service that searches not only for identical marks but also confusingly similar marks.  It is important to demonstrate to a USPTO examining attorney that consumers will not be confused if the owner adopts a proposed mark. If your proposed adopted mark is “confusingly similar” to an existing mark in the same or overlapping product classes, your mark application may be refused registration by USPTO.  Trademarks are valuable intellectual property rights when properly enforced but not so useful if an owner does not actively protect its rights.

Of course, enforcement can become expensive in the face of counterfeit goods, rogue websites, and knock-off products.  Nonetheless, it is the owner’s responsibility to actively police its marks in the face of competition.  Given the expense to obtain and protect trademarks, it is little wonder why trademarks are a cornerstone of a successful branding strategy and a significant part of a company’s goodwill and intellectual property valuation.  As a result, the USPTO, for federal marks, and the states for state trademarks (possibly as part of a UCC filing), maintain a trademark register and a recording of title for ownership interests that is searchable for interested parties.

Federal Trademarks.  Although potentially valuable, federal trademarks for cannabis products and services through the USPTO are generally not available and will be refused registration if the product or service touches the cannabis plant.  There are recent exceptions created in the 2018 Farm Bill for Hemp-based products, having a dry weight basis of 0.3% or less of THC, but only if a new federal mark registration application was filed after 12/20/18.  See Agricultural Act of 2014, Pub. L. No. 113-79 (the “2014 Farm Bill”) and Agriculture Improvement Act of 108, Pub. L. 115-334 (the “2018 Farm Bill”), which expanded the definition of “industrial hemp” beyond the 2014 Farm Bill to include not only “the plant Cannabis sativa L. and any part of that plant,” but also “the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Compare 2018 Farm Bill § 10113, with 2014 Farm Bill § 7606.  In those cases where the product or service is marketed as a Hemp based product, you may register and adopt a federal mark in commerce for related products and services and obtain nationwide protection for the mark.  On the other hand, not all goods or services related to cannabis are themselves illegal under federal law.  Marks have been federally registered for cannabis related publications, marketing consulting, guided tours of cannabis establishments, quality testing services, and cannabis growing training classes.  However, keep in mind that attempts to circumvent federal trademark law have been generally unsuccessful.  Confections, for example, are frequently sold alongside cannabis confections.  If an owner attempts to register a mark for the non-cannabis products, an alert examining attorney at the USPTO may spot the “dual-use” situation with a relatively easy search of the applicant’s website and marketing materials.  If the examiner finds evidence of cannabis use, the examining attorney could require the owner to disclaim cannabis use with a note on the registration stating, “not for use with Cannabis products.”  While this statement and note on the registration may overcome an office action and the USPTO’s refusal of registration, it will also likely defeat any commercial purpose for obtaining the registration in the first place.

Trademarks under State Law.  Eleven states plus the District of Columbia have legalized cannabis for adult, recreational use, including California, Colorado, Washington, Oregon, Nevada, Alaska, Illinois, Michigan, Maine, Vermont, and Massachusetts.   In those states, you can obtain trademark protection for any word, name, symbol, or device, used in commerce to promote cannabis products and services.  As in any trademark application, you must specify the particular product classes where your product or service will be sold or used and you must have your product or service in actual use in that jurisdiction for those product classes.  Priority of trademark protection is based upon actual use in any particular jurisdiction.  Depending on the state, you may obtain the same kind of marks as you would filing at the USPTO, including a word mark, a stylized logo mark, a service mark, a trade name, a packaging trade dress, or a product design trade dress.    See info for California at https://www.sos.ca.gov/business-programs/ts/.

Common Law Trademarks. Use of a brand or logo in commerce grants a Cannabis business owner common law trademark status, without the expense of registering your mark with the federal or state government. You have some limited rights in such a mark and may even be able to pursue claims for trademark infringement in limited circumstances under a claim for false designations of origin.  See 43(a) of the Lanham Act. 15 U.S.C. § 1125(a).    Registration of a state or federal trademark however, offers more protection than a common law trademark. For instance, common law trademarks protect your brand only in the limited geographical territory where you do business.  A common law mark is usually interpreted narrowly and can result in small geographical “carve-outs” from a state or federal mark of a competitor.  Often the common law mark may only be considered enforceable in a local market as to competing rights of a competitor.  If you want to expand into other regions, you could be blocked by someone who is using your same mark in a different part of the state. The broader geographical protection of a state or federal trademark is always preferred and will be useful in attracting investors.  Also, keep in mind that you may not be able to record title in a searchable database for such an asset.

Trademark Litigation.  Litigation in trademarks arises in various contexts, including in federal and state courts, and before the Trademark Trial and Appeals Board (“TTAB”), a part of the USPTO.   State and federal court proceedings are typically brought under a claim of trademark infringement, unfair competition, or false advertising.  TTAB proceedings through the USPTO involve matters regarding trademark oppositions and cancellations.  Trademark infringement cases use the likelihood of confusion standard with the various factors mention above, including the strength of the registered mark, similarities between the marks, competitive proximity, likelihood of competitive proximity and overlapping markets for goods, actual confusion on the part of purchasers, the alleged infringer’s good faith, relative quality of the alleged infringer’s product, and the sophistication of the buyers in the relevant market.  See Trans-High Corporation, Inc. d/b/a/ High Times v. Richard Reimers, Dist. Court, ED Washington (2015) and Woodstock Ventures LC v. Woodstock Roots, LLC, 387 F. Supp. 3d 306, Dist. Court, SD New York (2019).   Trademark infringement liability is substantial with the potential for damages based on lost sales or an infringer’s profits.  In some cases, if infringement is willful, the court could award treble damages. See Lanham Act, 15 U.S.C. §1117.

Copyright Protection

Copyright Protection of Cannabis Creative Works Graphics.  Copyright protects original works of authorship that are stored in a retrievable format, including musical, dramatic, literary, and artistic works such as graphics, illustrations and depictions, films, songs, lyrics, writings, and computer software. Cannabis related products and services can benefit from copyright protection through graphical depictions, illustrations, logos and writings on the product packaging, on a garment, on the product itself, or on a website. Registration is not technically required, because copyright attaches automatically to the work upon creation and storage. However, it is required to enforce a copyright and is highly recommended.  In many cases, you can file a registration immediately before pursuing a copyright enforcement litigation.  17 U.S.C. § 411(a).    Copyright registration within three months of its publication, allows the copyright owner the full benefits of registration, including presumption of ownership and validity and availability of statutory damages of up to $150k, plus attorney’s fees in the event of a copyright infringement litigation.  17 U.S.C. § 504(c).  Cannabis owners will benefit from these provisions as it allows a strong incentive to protect the graphics creative works of the company while being reimbursed for the attorney fees required to enforce the protection from infringement.  Obtaining a certificate of registration from the U.S. Copyright Office is also a prerequisite to initiate a lawsuit alleging infringement of illegal works. To establish copyright infringement, a plaintiff must prove two elements: 1. ownership of a valid copyright, for which the certificate of registration will provide prima facie evidence; and 2.  that the defendant copied substantial elements of the copyrighted work.  17 U.S.C. § 501.  Whelan Associates, Inc. v. Jaslow Dental Lab, Inc. 797 F.2d 1222, 1231 (3d Cir. 1986).

Copyright is a form of intellectual property that grants the creator of an original work the exclusive right to determine whether, and under what conditions, this original work may be used by others. Under US law, copyright protection exists “in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S. Code § 102. Copyright protects only the original expression of ideas, and not the underlying ideas themselves. In other words, copyright allows artists, authors and other creators protect expressive elements in their unique creations and copyright law does not require the plaintiff demonstrate the legality of the work’s underlying content.  Also, illegality is not generally a defense in an infringement suit since illegal works are copyrightable.  So, most likely a US federal district court would enforce cannabis copyrights because illegality is not a bar to enforcement either.  Two of the Circuit Courts of Appeal have reached similar conclusions in the past. Given the low cost of obtaining registration, cannabis businesses to strongly consider protecting its works in this manner.

Copyright Litigation.  The expanded rights under copyright law include the ability to sue for copyright infringement as previously discussed above.  Under the US Copyright Law, Title 17 of the US Code, “no civil action for infringement of the copyright in any United States work shall be instituted until . . . registration of the copyright claim has been made in accordance with this title.”  17 U. S. C. §411(a).   Justice Ginsburg in a 2019 United States Supreme Court case held that the Copyright Law “bars a copyright owner from suing for infringement until registration . . . has been made.”  The Court concluded that, except in very limited circumstances, the Copyright registration process must be complete before the owner can bring claims against alleged infringers. Fourth Estate Public Benefit Corporation v. Wall-Street.com, 139 S.Ct. 881 (2019).

Any cannabis company that wants to develop a distinctive visual impression likely owns many copyrights. To protect this important branding component, cannabis companies should pursue copyright registrations diligently. As an essential step in the branding and IP rights protection process, cannabis companies should:  evaluate their creative materials to identify the copyrights they own; and then apply to register any distinct and protectible work, to ensure that they possess the key brand protection resource: the rights to protect its works from copyright infringement.

Cannabis brands should all take steps to protect and police their interests in such copyrights, to help distinguish their brands from others.  As mentioned above, logos, fanciful designs on packaging, photos on websites, expressive text on packaging and websites, and a variety of other artistic materials constitute copyrights that cannabis companies may own. Diligent copyright enforcement represents one of the most significant ways cannabis companies can protect their branding and creative collateral. Copyright infringement claims provide statutory damages, making it an essential tool for use against potential copycats, counterfeiters, and IP pirates.  See Is Your Cannabis Copyright Enforceable?  Nathalie Bougenies, July 21, 2018 Harris Brickens, located at https://harrisbricken.com/cannalawblog/is-your-cannabis-copyright-enforceable/.

Copyrighting Software Applications Algorithms v. Code. While algorithms that are executed by software applications can be patented, the code itself can only be copyrighted. The moment your code becomes fixed in a tangible medium, copyright protection applies for the life of the author, plus 70 years. However, you do not have to disclose all the source code.  If you have more than ten pages of code, you can redact the middle portions and only disclose the first few and last few pages of code.  The redacted portion may be claimed as a trade secret.  There is a procedure for claiming a portion of the code as a trade secret in the copyright registration procedures for software registration.  It is advisable that you contact an attorney for assistance with this procedure. Further, with respect to the algorithms, you may be able to patent them in a software patent if you are concerned about the code being decompiled and reverse engineered.

Trade Secret Protection

Intellectual property that cannot, or should not, be protected with patents and trademarks can likely be protected as trade secrets if it meets the statutory requirements of deriving independent economic value from not being generally known, diligently protected by the trade secret owner by limiting those with access, and not disclosed to the public. In the Cannabis industry, strain-specific growth formulas, recipes, and customer information are often best preserved as trade secrets, for example. If properly protected, a trade secret may last indefinitely. Trade secret law has historically been protected by state law, in most cases, closely resembling the Uniform Trade Secrets Act.  See for example, California’s Uniform Trade Secrets Act, Civil Code sections 3426 through 3426.11.    However, in 2016, a federal statute was passed into law, the Defend Trade Secrets Act.  18 USC § 1836.  So, a trade secret case now can be heard in either a state law court or a federal district court.  There are subtle differences in the law but one big advantage to DTSA is the ability to obtain an order to seize products resulting from a trade secret misappropriation.

If your innovation is something that would not be easily reverse-engineered by another party and is not independently developed by another, you may be able to protect your innovation with a trade secret, as long as you can describe it with particularity and maintain its confidentiality without misappropriation.  Compliance with these requirements is easier said than done and requires a diligent system of protection to maintain the secrecy of your innovations and proprietary business practices.  One thing is clear with regards to trade secrets, a primary concern is your own employees.  All involved in the invention and creation process must be under an obligation to assign those innovations to the company in exchange for employment by the company and further acknowledge in an employment agreement that they have been assigned to the company, are property of the company, and are in fact trade secrets of the company unless published or patented or otherwise exploited by the company.

Marking Documents. Under trade secret law, documents containing trade secrets are best protected when they are marked as “proprietary,” “confidential,” or “trade secret” and further marked with “Do Not Copy or Distribute”.  Also, a document containing trade secrets should be identified as confidential information in employment agreements, cooperation agreements, and non-disclosure agreements. Access to these documents should be restricted to only those individuals who are furthering the business’s objectives. Disclosures to parties outside the company, such as venture capitalists, investors, and business partners, must be preceded by a non-disclosure agreement.  Silvaco Data Systems v. Intel Corp., 184 Cal. App. 4th 210 (Cal. Court of Appellate Dist. 2010).

Any dissemination of trade secrets to persons outside the company without authorization may result in damages for trade secret misappropriation. All employees of a business that have access to confidential documents should sign confidentiality agreements that safeguard trade secrets, regardless of their employment status.  However, it also makes sense to limit access of confidential, trade secret documents and data to only those with a need to know that information.  One other factor for diligent protection of trade secrets is password protection and other types of encryption means.

Trade Secret Litigation.  There are numerous ways that trade secret cases play out, but there are essentially two common fact patterns in the cannabis industry and elsewhere that are reoccurring.  First, an employee or group of employees leave one company for a competitor and are alleged to take its trade secrets with them.  Hopefully, they have signed the set of agreements I described above.  If so, then you as a representative of the company must respond swiftly with immediate legal action to maintain the secrets by seeking an immediate preliminary injunction.  Hopefully, those exiting employees have participated in a thorough and complete exit process from the company and turned over computers and company issued thumb drives, along with company files.   Second, a company who comes out with a similar product, device, or set of information, and is alleged to have stolen the idea from its competitor.  In California, there is general public policy of employee mobility, so if you learn that one of your ex-employees is now working for a competitor, you can fear the worst.  The non-compete agreement that employee signed when they joined your company is likely not enforceable in California but a trade secrets provision in an employment agreement, if properly drafted, could potentially be enforceable.  You may be in better luck to enforce company non-compete agreements in other jurisdictions.  Your job of proving the unfair competition will be made much easier if you have the necessary signed documents and conducted the exit process I previously described.  Of course, under a departing employee situation where your company plays offense to prevent misappropriation is only one scenario.  You should be equally concerned about the employee on-boarding process.  Will your new employee be bringing company secrets from her previous employer??  If so, you may be hiring a lawsuit.  In other words, do not run with scissors!  Instead, develop a thorough on-boarding and exiting employment procedure as well as a complete set of properly drafted documents for assigning inventions and creations and acknowledging trade secrets. FLIR Systems, Inc. v. Parrish, 174 Cal. App. 4th 1270 (Cal. Court of Appeal, 2nd Appellate Dist., 6th Div. 2009).

Why is trade secrets litigation so important and applicable to the cannabis industry?  Well, for one thing the industry is in its infancy so it will undergo great innovation and invention in the coming years.  Unfortunately, this also means that anyone with experience in the industry will be in high demand, leading to the high potential for misconduct and theft.  Even companies that take thorough and diligent steps to prevent misappropriation could become victims.

Patenting Inventions

To obtain a United States patent for an invention, it must meet the three requirements under the United States Patent Act, Title 35:  Novelty (NEW), Utility (Useful), and Non-Obviousness (Patentable).  35 U.S.C. §§ 1-390.   Patents must be prepared and submitted to the USPTO for examination.  A patent is a secret document when first filed with the Patent Office but becomes published eighteen (18) months after filing, unless a secrecy order is granted in extraordinary circumstances, such as those involving national security. A typical utility patent application may take two to three years to proceed through the process to become an issued patent.  Also, one or more issued patents could result from a single patent application depending on how many independently patentable ideas are part of the same application.  USPTO has been more aggressive recently in breaking applications into a parent application and divisional applications from a single patent application involving multiple patentable concepts within one application.  For example, if your invention is an autonomous automobile having an advanced battery compartment, an improved drivetrain, and a novel computer interface, the USPTO may force you to break up each of these subsystem concepts into separate patents, even though you may have included them together in the original application. In this situation, it might be possible that the Patent Office would break your single patent application into multiple, divisional patent applications, perhaps as many as six to ten, or even more!  This adds costs to the patent application since a new filing fee is required for each divisional application after you already paid a filing fee for the original application.

One issue for cannabis-related patents is the uncertainty in enforceability within federal courts that have exclusive jurisdiction to hear patent infringement cases, although recent caselaw suggests that this will be less of an issue than previously feared.  Also, a lesser-discussed issue arises from the cannabis culture itself; until recently, cannabis was mostly associated with a fairly open-source, laissez-faire culture.

Public Disclosure. If you have an invention you would like to protect, you need to establish when you first showed your invention to the public. It could have been at a Cannabis Cup, convention, or conference; it could have been featured in an article or advertisement that was posted online or printed in a magazine. If you did make such a disclosure, you have one year to file, or you may be barred from obtaining a U.S. patent. Internationally, public disclosures may prevent you from obtaining a patent in most countries.

Provisional Patent Applications. A provisional application provides Cannabis inventors an early filing date for their invention; however, it does not become a “real” patent unless a non-provisional patent application is filed within one year. This one-year period enables Cannabis inventors time to perfect their invention or test its commercial viability without incurring the expense of filing and prosecuting a non-provisional patent application. In addition, provisional applications provide inventors the right to mark their products “patent pending.” This mark provides notice to potential infringers of a product’s patent status, which will be useful if the inventor files a patent infringement lawsuit.

Non-Provisional Patent Applications. There are three types of non-provisional patent applications: utility, plant, or design applications. After filing a utility, plant, or design patent application, the United States Patent and Trademark Office (USPTO) will review the application, conduct a prior art search, and either allow the application or issue an office action. This process is called examination and can take 2-3 years or longer in some cases. Once granted, patent protection lasts 20 years for utility and plant patents and 15 years for design from filing date of the application.

International Patents. The United States is not the only Cannabis marketplace available. Canada and Spain are just two examples of countries with burgeoning Cannabis industries. If you have international aspirations, you should consider filing a Patent Cooperation Treaty (PCT) patent application. A PCT application allows an inventor to file one patent application in multiple countries, cheap and easy.

Cannabis patents and applications are not solely directed to compositions that include tetrahydrocannabinol (“THC”) and/or cannabidiol (“CBD”), two compounds of interest found in cannabis, but also a variety of novel compositions containing further active ingredients, such as alkaloids, psilocybin, and genetically engineered, recombinant compounds.  Other cannabis-related innovation includes a broad range of inventive technologies, including: diagnostic and detection methods for identifying, monitoring and characterizing cannabinoid and terpenoid amounts present in various composition; Extraction and Processing – methods of removing the desired compounds from cannabis and/or processing plants or extracts to achieve a desired chemical profile through using various methods of extraction such as distillation, etc.; Compositions for specific uses, such as essential oils, topical or cosmetic creams, smoking or ingestible products, and therapeutics; Consumption devices such as inhalers, nebulizers, applicators, or vaporizers; Methods of Treatment, including methods of treating various medical conditions, subject to submission of detailed clinical data and FDA approval; Methods of cultivation and specialized agricultural equipment, robotics, sensors, vertical farming apparatus, and specialized greenhouses.  See https://www.knobbe.com/news/2018/04/cannabis-considerations-protecting-your-cannabis-innovation.

One example of one or more novel compositions are found in issued U.S. Patent No. 8,642,645, Pharmaceutical Compositions Comprising Cannabinoids, directed to pharmaceutical compositions comprising Δ9 Tetrahydrocannabinol (THC), Cannabidiol (CBD), and at least one small molecule selected from Citric Acid, Ascorbic Acid, Citrus Essential Oil(s), Lecithin, one or more sugar(s), Resvertrol, and combinations thereof, wherein the composition exhibits an increased but negated psychoactivity with concurrent enhancement in therapeutic potency of THC and/or CBD, and further directed to methods of treating one or more disease(s) or disorder(s) modulated by the activation of the Cannabinoid CB1 and/or CB2 receptors, by administering a therapeutically effective amount of the composition.

So, growers, engineers, chemists, physicians, or biologists may have a role to play in future cannabis innovation.  Your company will want to consider all of its options to protect those innovations.

Design Patents.  Design patents protect ornamental, aesthetic and non-functional aspects of useful products.  Design patents have been used to protect Cannabis related products such as smoking paraphernalia, containers, and garments having various designs.   Design patents protect new, original and ornamental designs for an article of manufacture — in laypersons’ terms, the unique look of a product. In the cannabis industry, design patents could potentially protect a company’s packaging, a unique look for a vaporizer, cartridge, tincture or other device for using cannabis and so forth. Design patents have a 15-year term from their issue date, and the application process is generally less expensive, compared to utility patents.

Business Method Patents.  Many business method patents have been attacked in recent years through a series of cases at the United States Supreme Court, including one of the more significant, Alice v. CLS Bank 134 S.Ct. 2347 (2014).  Many business method patents have been implemented as software patents and the Alice case is a good example.  In that case, a patent was filed to implement on a general-purpose computer a method of hedging financial risk.  The rule that the Supreme Court created involved two steps to determine if a patent is eligible under § 101 of the Patent Act, Title 35.  35 U.S.C. §101.  The second step of the Alice test is reached only if the first step determines that the claims are directed to an abstract idea. If the claims are not directed to an abstract idea under step one, the claim is patent-eligible and there is no need to proceed to step two of the analysis.  If the particular business method is engineered as a computer implemented method utilizing special purpose elements of mechanical, chemical, biological, or physical origin, then the proposed invention has a good chance of obtaining patent protection if it meets the three primary requirements of a patent: New, useful, and non-obvious.  Given the myriad of new and developing regulatory patchwork and the evolving consumer and marketing landscape in the Cannabis industry, Business Method and Computer Implemented Software Cannabis patents are a particularly ripe area for Cannabis businesses to explore.

Plant Patents.  Plant patents give a plant breeder the exclusive right to clonally propagate a specific strain or cultivar of plant. Utility patents are broader and grant exclusivity over all plants having specific new and non-obvious traits.  Because cannabis is sometimes clonally propagated, plant patents are an effective way to protect new cannabis plant strains.  Utility patents are as well.  Plant patents may be used to protect specific plants that are not found in the wild and that are asexually reproduced.  The ratios of various desired cannabinoids and terpenoids can be used to differentiate strains of cannabis.  However, plant patents are limited to a single claim directed to any strain of interest.  This may not stop a competitor from developing and using a close, but non-infringing, cannabis strain.  The USPTO has granted numerous patents for marijuana plants.  Although this sounds like an opportunity for breeders, it also creates a threat due to the lack of publications on the subject dating back to when cannabis was completely illegal.  If USPTO examiners cannot search and find an old strain then it cannot be used against an application newly submitted even though the proposed new application is not really new. As a result, a newly granted patent may in fact be subject to invalidation if it is only patenting what really is an old strain, just unpublished.  One defensive response patent strategy is to proactively publish information about existing technology in a journal.  These publications may be made available to the USPTO to prevent others from filing patents on something not new.  Another approach would be to actively monitor the industry for new cannabis patents granted or new applications filed (once they publish in eighteen months), challenge the patent granted or the application through an IPR or by submitting prior art to the patent office, or seek a license.   A plant patent may be granted to someone who has invented or discovered — and asexually reproduced (such as by cuttings, grafting and budding) — a distinct and new variety of plant, other than a tuber-propagated plant or a plant found in an uncultivated state. A patented plant must differ from known, related plants by at least one distinguishing characteristic, which must be more than a difference caused by growing conditions or fertility levels, for example. A plant patents could become valuable assets for a cannabis company, potentially protecting a newly created strain of marijuana, such as one with unique THC/CBD levels or unique effects. The term of a plant patent is 20 years from the date of filing the application. A plant patent protects the inventor’s right to exclude others from asexually reproducing, selling or using the plant so reproduced.

Patent Litigation.  As mentioned above, there are numerous opportunities to innovate new cannabis inventions for compositions, extractions and processing, consumption devices, methods of treatment, methods of cultivation, and more.  One issue that has been litigated in recent years in other fields of life science and agriculture involve the claim of patent ineligibility 35 USC § 101, citing a two-step test, including whether a proposed invention is directed to a law of nature, or an abstract idea and if it is whether the invention has something more that the law of nature or abstract idea.  See Mayo Collaborative Servs. V. Prometheus Labs, Inc. 566 U.S. 66, 71 (2012). Some inventions in the categories mentioned above may be challenged under this legal theory in the future but overall patents have been issued by USPTO in these categories. A recent search of the USPTO database for issued patents and patent applications under the search term, “Cultivated Cannabis”, obtained 4,474 hits, with many patents issued.  Obviously, the industry is clearly interested in patenting new innovations for cultivated cannabis.

Litigating patents can be notoriously expensive.  A patent owner may bring an action in a Federal District Court since patents have exclusive jurisdiction under federal law. See 35 U.S.C. § 271. Also, a purported infringer has standing to bring an action in Federal District Court for a Declaratory Judgment of Noninfringement (a DJ action), including a licensee in good standing.  MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).   In addition, the advent in changes in the law through the American Inventor Protection Act has spawned new ways to litigate for patents under the Patent Trials and Appeals Board (PTAB), an administrative proceeding under the USPTO.   PTAB proceedings have been extremely active for the last few years, especially challenging issued patents on a post-grant basis under an IPR proceeding.  Patents, as well as other intellectual property, may be asserted through the United States International Trade Commission (ITC) Section 337, in an ction, against any parties exporting infringing or misappropriating goods into the United States.  The IP owner may bring such an action to obtain a remedy called an exclusion order, which prevents products from proceeding past the docks in any relevant port of entry.  Although exclusion orders can prevent the shipping of infringing products into the United States, the IP owner may not obtain a damages remedy for past infringement (or any damages for that matter).  The ITC is a popular venue for IP cases because it can speed up the entire process to as little as seven (7) months.  Lots of costs, real fast.  However, note that a claim for damages due to patent infringement (or treble damages) may be done only through the courts.  Currently, cannabis related litigation is on the rise for invalidity, infringement, and other related cases.  An interesting case to watch was filed on July 30, 2018 when United Cannabis Corporation (“UCANN”) sued Pure Hemp Collective, Inc. (“Pure Hemp”) in the United States District Court for the District of Colorado (United Cannabis Corporation v. Pure Hemp Collective, Inc.(Case No.: 1:18-cv-01922-NYW) for patent infringement. Pure Hemp denied infringement and counterclaimed that the UCANN patent is invalid and should never have been granted because similar products were well known long before the filing date of the patent.  The case is currently making its way through the courts.

Overall Benefits of an Intellectual Property Portfolio in Cannabis.

Monetizing. Once you have trademarked your brand, patented your inventions, protected your business sensitive content with trade secrets, and copyrighted your code, you will be ready to monetize your intellectual property. This can occur in five general ways: commercial use, business valuation, licensing, buy/sale, and enforcement.  Although the investments can be staggering, the payback for increased valuations and higher margins frequently suggest that strategy pays off. You be the judge.

Commercial Use. If you intend to make, use, and sell your products or services, trademark certificates, patent grants, and trade secrets are key assets to establish, promote, and differentiate your business in the increasingly competitive Cannabis marketplace but the payoff could be higher margins than might otherwise be attainable IF you actively assert and enforce your IP portfolio to prevent competitors from copying your protected products.

Business Valuation. Intellectual property is a business asset. If properly protected, intellectual property assets can increase the perceived or actual value of your business. As the value of your business increases, so does your ability to attract funding from investors.  In a merger/acquisition deal, substantial due diligence will be spent by the buyer wanting to understand whether you can demonstrate clear title to all of your IP.  Buyers will also want to evaluate the quality and strength of your IP portfolio as well.  Often, the intellectual property alone can drive premiums not found for products without an extensive intellectual property portfolio.

Licensing. Some inventors are better innovators than entrepreneurs or just have less capital to exploit the invention.  Let’s face it, if your particular medical cannabis invention requires FDA approval, it could cost big bucks to get to market.  Finding industry partners with even deeper pockets than yours may be the key to exploit your cannabis technology innovations.  For these companies, the best course of action might be to license their technology or collaborate with an industry leader or at least one with access to more capital than your company. Licensing provides flexibility to trademark and patent holders, enabling them to generate up front licensing fees, ongoing royalties, and other forms of compensation, such as two-level licensing, although this can become complicated and require substantial legal assistance to close such a deal.  A license can be exclusive or non-exclusive, and limited in geography and purpose.

Buy/Sale. Ownership rights to intellectual property are transferable. Patents, trademarks, trade secrets, and copyrights can all be bought and sold. For instance, Cannabis Sativa, Inc. recently purchased a pending patent application for a medicinal plant strain.

Enforcement. If a competitor is making, using, or selling your products, services, or brand without your permission and refuses to stop, you must file an infringement lawsuit to prevent the loss of your rights. If you are successful in your lawsuit, you will be able to recover actual damages and, possibly, statutory damages.

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