By Marsha Durr, Rose Law Group law clerk, and Jeremy Kapteyn, chairman of Rose Law Group Intellectual Property Law Department
Marijuana has created quite a buzz in Arizona this year. In June, petition signatures were submitted to the secretary of state for approval to put legalization of adult use of marijuana on the November ballot. Less than two weeks later, a lawsuit was filed seeking to invalidate those signatures and prevent the initiative from appearing on the ballot.
Last month, the Arizona Department of Health Services (DHS) accepted more than 700 applications from entities vying for one of the 30 licenses the DHS recently announced would be released for new dispensaries in Arizona.
The explosion of marijuana businesses in Arizona and the rest of the country in recent years has attracted a great deal of attention to the massive economic potential of the legal medical and recreational marijuana industries, which some forecasts project will exceed $20 billion by 2020. As in other major industries, intellectual property (IP) protection is an important concern for cannabis entrepreneurs. However, myths abound regarding the availability of various types of IP protection for cannabis industry businesses. Because the Drug Enforcement Administration (DEA) still classifies marijuana as a Schedule I illegal drug, many people believe governmental protections are not available for their marijuana-related IP.
That is not true. Cannabis industry businesses can take steps to protect their IP under state and federal trademark laws, federal patent and copyright laws, and state and federal trade secret laws. The following briefly outlines these categories of IP protection and provides an overview of their applicability in the cannabis industry. Future articles will treat each of these categories in greater depth.
A trademark is a word, phrase, symbol, combination of colors and/or a design that identifies and distinguishes the source of goods or services of one party from those of others. The term “trademark” is often used to refer to both trademarks and service marks. In addition, the overall commercial image of a product, including the design or configuration of a product together with its labeling and packaging, can also serve to distinguish the source of a product and can comprise a protectable form of IP referred to as “trade dress” (for example, the shape of a Coca-Cola® bottle or the appearance of a Duracell® battery).
The ability of cannabis industry brand owners to obtain a federal trademark registration through the United States Patent and Trademark Office (USPTO) is currently limited because only items that are “legal in commerce” are eligible for federal trademark registration. Federal law prohibits marijuana manufacturing and distribution under the Controlled Substances Act (CSA), and the USPTO has refused to register marks for goods and services related to use of cannabis products.
Certain businesses in the industry with products or services that are ancillary to marijuana may still be able to obtain a federal trademark registration and overcome any obstacle posed by the CSA. Such ancillary products or services must have a viable use or function outside of use with marijuana. For example, a brand of rolling papers may be eligible for a federal trademark because it can be used to roll tobacco cigarettes, which are legal.
Although some companies may not currently be able to secure a federal trademark registration, common law rights are still available. Companies that anticipate difficulties obtaining a federal registration should file state trademark registrations, which are straightforward and inexpensive to obtain. While the scope of enforcement for such trademarks may be geographically limited to the state of registration and use, the potential benefits of such registrations far outweigh any associated costs. First, a state registration will provide the registrant with the statutory remedies for infringement available under the laws of that state. In addition, a state registration is one means of establishing an official record of priority of use for a trademark that may be important in future federal registration and national enforcement efforts.
Prior to investing in adoption of a new brand, entrepreneurs launching a new cannabis industry business should consider performing a trademark clearance search. Taking this step will help a new business avoid trademark conflicts with other businesses and can be used to identify companies with federal trademark registrations and applications, state trademark and business name registrations, and other trademark uses that might establish common law rights in a similar brand.
Even companies whose operations might currently be restricted to a single state should consider clearance issues with respect to brands localized to other states because they have the potential to develop and expand, for example, with trademark licensing or if current federal restrictions on cannabis product commerce are lifted by future legal developments. The nominal cost of a clearance search is a good investment for a new company in any industry prior to making a significant expenditure on branding and marketing. Taking this preliminary measure is likely to be particularly valuable for emerging companies in the cannabis industry given the somewhat unusual state trademark registration compartmentalization created as an artifact of the disjointed state and federal regulatory structures.
A patent is a limited duration property right relating to an invention. A patent is only issued through the federal government. There are three types of patents: utility, design and plant patents. Patentable inventions that are eligible for a utility patent include machines, processes, manufactured articles, and compositions of matter. A design patent covers the ornamental design of a manufactured good. A plant patent may be obtained for new plant varieties that are stably reproduced by asexual propagation. The fundamental requirement that an invention be novel and non-obvious relative to known technology applies for each type of patent and is evaluated by the USPTO in the patent examination process. The USPTO will grant a patent after determining that these criteria are satisfied, providing the patent holder with the right to prevent others from making, using, selling, or importing any product or service covered by the patent claims.
Unlike the federal trademark laws, nothing in the patent laws specifically bars the USPTO from issuing patents for cannabis-related inventions and patents have issued for a wide range of subject matter relating to marijuana. Recently, the USPTO has issued utility patents for cannabis plants, a noteworthy development in the industry.
Companies engaged in innovation and problem-solving, including even seemingly incremental technological advancements in the development of products or services in the cannabis industry, should assess the potential strategic business value that pursuing patent protection might offer. Design patents are often neglected as a component of an IP protection strategy. Companies that produce devices or manufactured goods should consider integrating a design patent strategy into their product development plan, particularly as their brand recognition increases and their products may be at increased risk of imitation or copying.
In addition, as the industry becomes more patent-savvy, businesses making substantial investments in product development and manufacturing should also consider performing systematic evaluations of the competitive landscape. Patentability, state of the art, and patent landscape searching, freedom-to-operate assessments, and design-around strategy services are several categories of IP counseling that will need to be leveraged by industry-leading companies to maximize the integrity, competitive advantage, and value of their IP assets and minimize their risk of infringing the patents of others. Both patent procurement services and strategic analysis services can be scaled to any company’s needs and budgets, and almost any new or existing business in the cannabis industry is likely to benefit from counseling with respect to implementation of a patent strategy.
A copyright protects original works of authorship including literary, dramatic, musical, and artistic works. For example, poetry, novels, movies, songs, computer software, and architecture can all be protected by copyright. A copyright provides the owner, often the author or creator of the protected work, with certain exclusive rights including the rights to reproduce and distribute the work or prepare new works based on the copyrighted work. Although registration is not required for copyright protection, obtaining a federal copyright registration provides certain enhanced protections.
The federal copyright laws contain almost no prohibitions on the subject matter of copyrights. Federal copyright registration has been extended to a variety of marijuana-related works, including cannabis grow guides and cookbooks. Federal copyright protection is available to cannabis industry companies for protection of works such as text and artwork on labels, product tags, product packaging, instructional materials, and the design and appearance of Websites and apps. A copyright registration can be obtained as long as the U.S, Copyright Office decides the materials contain original and creative content. Registration fees are low, and obtaining a registration can provide a basis for seeking statutory damages and attorneys’ fees in cases of infringement.
Trade secrets are confidential information that give a business a competitive edge. Trade secrets can take a variety of forms including sales and distribution methods, advertising strategies, lists of suppliers and clients, manufacturing processes, and recipes or formulas. Unlike trademarks, patents, and copyrights, trade secrets are protected without any formal registration process and can potentially be protected for an indefinite period of time.
A trade secret can be a valuable source of protection for a product or process that may not be amenable to patent protection and is also be difficult to reverse engineer. However, trade secrets are also a relatively fragile form of protection in that the protection is lost if the confidential information becomes publicly known.
There are three requirements for establishing and maintaining a trade secret: 1) The information must not be generally known or accessible to people who deal with the relevant information regularly, 2) the business must gain some economic value from the secret, 3) and the business must take reasonable steps to maintain the secrecy of the proprietary information.
This third element is important because when the proper steps needed to protect the secret aren’t taken, the secret can lose its proprietary value. A business should implement certain best practices to protect its trade secrets, including various contractual and information-handling measures, and these practices and their sufficiency may vary based on the nature of the proprietary information.
Many products and practices in the marijuana industry may benefit from trade secret protection. Information such as nutrient formulations, production techniques, extraction methods, and cannabis product formulations or recipes may be well suited to trade secret protection. It is prudent for marijuana business owners to take active steps now to keep proprietary information a secret and to obtain legal guidance to help ensure that they have implemented adequate measures to keep their trade secret secure. This is especially true for business owners with employees who will be exposed to the trade secret information. Employers whose operations rely on valuable proprietary information should implement employment agreements with appropriate confidentiality and IP provisions as one element of a strategy for safeguarding their company’s trade secrets. Other measures are typically required and should be tailored to the nature of the trade secret information.
The current tension between federal and state laws regulating the marijuana industry has created many gray areas affecting the industry’s operation and growth. Even so, businesses can still take steps to protect IP related to their brands and associated products and services. Each business presents unique circumstances and challenges, and consulting an experienced industry attorney for advice about a tailored IP protection strategy early in the business development life cycle is recommended.
The rapidly shifting political and social forces in this country surrounding marijuana-related issues promise many impending changes ahead for the cannabis industry, and both the State of Arizona and cannabis industry businesses operating in Arizona will lead and influence the evolution of the industry.
NOTE: This is not intended to be legal advise