Hybrid Strategy for Optimal Protection of Cannabis Intellectual Property
As of the date of this article, nine states and Washington, DC, have legalized Cannabis for recreational use. Another 21 states have legalized medicinal use of Cannabis. According to a recent report Legal marijuana sales topped $9.5 billion in North America in 2017, representing a 33% increase over 2016, and sales are projected to reach $24.5 billion by 2021. The spreading legalization of Cannabis presents a unique opportunity to entrepreneurs, businesses and investors to participate in the growing market at the “ground floor” — and it makes for interesting conversations amongst cannabis lawyers in Los Angeles. As with any business, intellectual property is a key assets of Cannabis related businesses. However, protection and enforcement of Cannabis related intellectual property faces unique challenges since, despite its recent and spreading success at the state level, Cannabis is still illegal at the Federal level. This article suggests adoption of a hybrid intellectual property protection approach to optimize intellectual property protection for Cannabis businesses. The suggested strategy is multi-faceted and involves Patent/Trade Secret approach to protect valuable technology and innovation; Copyright/Trademark approach to protect otherwise federally unprotectable logos; and obtaining State trademark protection in Cannabis friendly states along with federal protection for ancillary or similar non-Cannabis products.
Patent/Trade Secret Hybrid to Protect Cannabis Related Inventions
Patents protect inventions, which meet the three basic criteria of utility, novelty and non-obviousness. There are four main categories of patents. Utility patents, Design patents Plant patents and Business Method Patents, which are technically a subset of utility patents. Despite illegality under federal law, the USPTO has been issuing utility patents directed to Cannabis related inventions for decades. Until recently, such patents were directed primarily to medicinal and law enforcements aspects of Cannabis. Over the past few years, as legalization has gained steam and taken root, issued patents increasingly focus on recreational use, including, a recent one touting the nutritional value of Cannabis. Some very recent examples of issued Cannabis utility patents include: U.S. patent no. 10,028,987, issued on July 24, 2018, entitled “Cannabis Infused Milk;” Patent No. 10,028,016, issued on July 24, 2018, entitled “Cannabis Personal Processor Apparatus,” directed to a product for breaking up Cannabis bud; Patent No. 10.021,838, issued on July 17, 2018, entitled “Cannabis growth method and systems;’ and Patent No. 10,052,303, issued on Aug. 21, 2018, entitled “Cannabinoid formulations,” which touts the “nutraceutical application” of Cannabis.
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 and containers. For example, U.S. Patent No. D798,739, issued on October 3, 2017, is directed to a Cannabis storing container with individual tear off lids. Most recently, U.S. Patent no. D825,137, issued on August 14, 2018 and entitled “Garment with Cannabis Leaves” depicts a T-Shirt with numbers populated by cannabis plant.
Business method patents protect innovative ways of doing business. A well-known and highly successful example of a business method patent is Amazon’s One Click Order patent, which expired last year. Amazon obtained the patent in 1999, when internet shopping was in its infancy, and used it to its advantage in gaining the upper hand against its competitors in internet shopping. Given the myriad of new and developing regulatory patchwork and the evolving consumer and marketing landscape in the Cannabis industry, Business Method Cannabis patents are a particularly ripe area for Cannabis businesses to take advantage of.
Patent protection awards a federal legal monopoly to patent owners for an extended period of time and, advantageously, can be enforced against knowing or unknowing infringers. In return, the inventor is required to disclose the invention to the public in the patent applicaiton. However, patent protection and enforcement is in the purview of the federal government, and, despite availability of patent protection for Cannabis related inventions, there is uncertainty on the enforcement front due to the illegality of Cannabis at the federal level. As a result, some businesses may shy away from disclosing their Cannabis inventions to the public, without assurance of enforcement availability against infringers, thus opting to protect their Cannabis inventions as a trade secret. A famous example of a trade secret is the Coca Cola formula, which the company has successfully protected as a trade secret for well over a century. Cannabis businesses can deploy trade secret law to protect sensitive and valuable business information such as unpatented inventions, marketing strategy and information, customer lists, processes and software, recipes, formulas, and nascent technology. In order for a business to make a trade secret claim, it needs to demonstrate that the information sought to be protected was proprietary to the business, of demonstrable value to the business, subject to protective measures; and not readily discoverable by others. Trade secret claims in California can be brought in court under federal law, 18 U.S.C. § 1836, et seq., as well as California’s version of the Uniform Trade Secrets Act, codified at Cal. Civil Code § § 3426-3426.11. However, a significant disadvantage of adopting trade secret approach over patent protection is its vulnerability to disclosure by employee relocation, inadvertence, theft or independent creation.
Cannabis businesses can optimize protection of their inventions throug a hybrid patent/trade secret approach, which involves filing patent applications for their inventions, while simultaneously treating them as trade secrets. Patent applications are kept secret for 18 months from their filing date; a period which can be extended if the applicant makes a request to the USPTO along with a statement that international applications will not be sought. By keeping the patent application from becoming public for as long as possible, cannabis businesses can benefit from patent protection and trade secret at the same time until such time that the patent issues, while minimizing the downside of trade secret protection. If, somehow the information loses trade secret status before the patent become public, they can switch to patent protection and maintain exclusivity to the information.
Trademark/Copyright Protection for Cannabis marks at the State/Federal Level
As a source identifier, trademark is another highly valuable intellectual property asset to Cannabis businesses in establishing and promoting their brand. A key feature of trademark law, important to the Cannabis industry, is that an owner’s right in the trademark does not arise from registration of the mark, but rather from legal use of the mark in trade and commerce. On the other hand, federal registration of a mark does provide benefits to the owner, including nationwide protection for the mark, presumption of ownership and validity and availability of statutory damages of up to $2M and attorney’s fees in the event of a trademark infringement suit. However, usage, not registration creates the underlying trademark rights. Rights in an unregistered trademark are referred to as “common law” trademark rights. Common law trademarks are just as valid as federally registered marks, but are limited to the geographical area where the mark is used. Additionally, an owner of common law trademark is not entitled to seek statutory damages or attorneys’ fees in an infringement suit and must instead prove actual damages such as lost profits or profits obtained by the infringer.
Despite unavailability of federal trademark protection for Cannabis product and most service marks due to illegality of its trade at the federal level, Cannabis businesses can still obtain significant trademark protection for their products and services by adopting a hybrid protection approach, which includes state registration in Cannabis friendly states combined with using the otherwise federally unprotectable marks on parallel products that do not include cannabis. For e.g., while a mark identifying a cannabis drink can’t yet receive federal protection, the mark can obtain federal protection in connection with be used to also identify the same drink without cannabis. That way, when federal trademark protection for cannabis does become available. While a state trademark registration is not as strong and robust as federal registration, it nevertheless enhances the value of the business by providing state-wide protection for the mark and provide would be infringers with notice of the mark. As the number of Cannabis friendly states increases, the geographic sphere of trademark state protected marks will increase.
Another hybrid approach to Cannabis trademark protection is using copyright law to protect otherwise unprotectable Cannabis logos. 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, film, songs, lyrics, writings and computer software. Importantly, copyrights protection attaches to an original work upon its creation and storage in a retrievable format. Cannabis related products and services can benefit from copyright protection in a number of aspects, including, graphical depictions and illustrations and writings on the product packaging or the company website as well as logos. Concerning logos, obtaining copyright registration is a way to get around lack of availability of protection for the logo as a trademark at the federal level. Because copyright attaches automatically to the work upon creation and storage, registration is not required for copyright protection. However, registration of a work 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 and attorney’s fees in the event of copyright infringement litigation.
Cannabis related businesses can maximize and optimize protection for their valuable intellectual property by adopting a hybrid approach tailored to their specific products and goals.