IP Protection and the Cannabis Industry: Strategies and Trends
By Gretchen L. Temeles, Christiane Campbell and Vicki G. Norton
April 2, 2018
The Legal Intelligencer
Protection of intellectual property is a key element in any company’s efforts to secure a competitive advantage. For companies in the cannabis space, efforts to secure intellectual property protection play out against a background of conflicting federal and state regulations. Cannabis continues to be a Schedule I drug under the Controlled Substances Act, and possession of cannabis is prohibited by federal law. However, 29 U.S. states and the District of Columbia have legalized medical cannabis, and eight U.S. states have legalized recreational cannabis. This article will address various IP strategies, including trademarks and branding, patents and trade secrets, for protection of cannabis and cannabis-related products and services. The article will also discuss trends in the industry as well as contrasting protections available on the state and federal levels.
Trademark Protection in the Cannabis Space
Obtaining a federal registration for cannabis-related goods and/or services does not come without challenges. Protecting a brand by registering a trademark with the U.S. Patent and Trademark Office (USPTO) is contingent upon use of the trademark in commerce, and such use must be lawful. Therefore, before federal registration can issue, lawful use must be declared and proven. The lawful use rule is violated when the applicant’s application-relevant activities involve a per se violation of federal law. See Trademark Act Sections 1 and 45. The potential violations that arise here center around the Controlled Substances Act (CSA) and the Food, Drug and Cosmetic Act (FDCA).
The CSA has been an ongoing roadblock for cannabis-related federal trademark applications because it is a federal law that prohibits, among other things, manufacturing, distributing, dispensing or possessing certain controlled substances, including marijuana and marijuana-based preparations. See 21 U.S.C. Section 863. Additionally, the FDCA prohibits the sale of food products with added THC or CBD. Together, this can make obtaining a federal trademark registration complicated unless you are familiar with the process and the nuances surrounding it.
When a USPTO examining attorney receives an application for a trademark that he or she believes might be used in violation of the CSA or the FDCA, they will preliminarily refuse registration based on an alleged violation until the applicant proves otherwise. An application that covers ancillary goods and services is therefore more likely to be granted registration than an application that covers actual cannabis products or services.
It used to be true that an applicant seeking registration for CBD-related goods or services would have a greater chance for success than those seeking to register THC-related goods and/or services. However, the DEA issued a statement in December 2016 suggesting that CBD and marijuana extracts—though previously expressly excluded from Schedule I—are defined as marijuana and therefore classified as Schedule I drugs under the CSA. The DEA clarified this statement in March 2017, explaining that CBD is legal if it comes from a legal part of a cannabis plant. This means that an applicant must prove their CBD product is derived solely from the seeds and/or mature stalk of a marijuana plant before registration can be obtained.
Luckily, protecting your brand through a federal registration is not the only option. Certain states afford trademark protection to cannabis-related goods or services. Even though the protection afforded is only statewide, a state trademark can still be a red flag to junior users searching marks and it gives the registrant the right to stop third-party use of the mark within that state. State registrations may also be evidence supporting a claimed first-use date, as they are necessarily filed and obtained based on actual use of the subject marks.
Lastly, common law rights afford some protection for your brand. Common law rights emanate from use of a mark, and are born the moment a mark is first used in commerce. These rights are typically narrow in scope and limited to the geographic area in which the mark has been used, but they are rights that can be enforced against third-party infringers. There is no codified “lawful use” requirement in order for a mark to be protected at common law, as there is at federal law, which is good news for the cannabis space.
In stark contrast to trademarks, the USPTO routinely grants patents to cannabis and cannabis-related inventions. The status of cannabis as a Schedule I controlled substance is not relevant to patentability. Congress has determined that only two kinds of inventions are categorically not patentable: those encompassing human organisms, and those having as their sole purpose the use in atomic weapons. Everything else is fair game, see The Leahy-Smith America Invents Act (AIA), Public Law 112-29, sec. 33(a), 125 Stat. 284; The Atomic Energy Act of 1954; 42 U.S.C. Section 2181(a).
The USPTO applies the same legal standards to examination of cannabis-related patent applications as it applies to all other applications. The claimed invention must be new, useful and nonobvious and the application must teach one of ordinary skill in the art how to make and use the invention. Cannabis patents and applications on the USPTO database cover a wide range of technologies, for example:
- Cannabis plants: New strains of cannabis plants, genetically engineered cannabis, methods and equipment for cannabis cultivation, and monitoring cannabis plant inventories;
- Cannabis processing: Methods of extracting and processing active ingredients from cannabis plants;
- Cannabis products: Herbal preparations, smoking products, extracts, oils, resins, foodstuffs, nutritional supplements, beverages, cosmetics, animal feeds and veterinary products;
- Cannabis consumption devices: Vaporizers, nebulizers, inhalers, rolling papers, beverage dispensers;
- Medical cannabis use: Methods of treating diseases or disorders, including cancer, pain, epilepsy and addiction;
- Detection and chemical analysis of cannabis.
To date, there are only a few granted patents covering cannabis plants. A cannabis plant that has been found in the wild is not patentable. To be patentable, a cannabis plant must be the product of human ingenuity, either through selective breeding or genetic engineering. There are two types of patenting regimes for patenting cannabis plants: standard utility patents and a special category of “plant patents.” A utility patent can provide broad coverage for a plant, seeds and methods of breeding, cultivating and processing. A “plant patent” provides narrower coverage and is limited to plants that are asexually reproduced, that is, grown from cuttings and not from seed.
The economic benefits of patents in the cannabis industry come with a few cautions. Patent enforcement remains uncertain. Patent litigation takes place in federal courts and it is not clear how a federal court would enforce a patent involving a controlled substance. Patent holders can license patents as in any other industry, but licensing programs should ensure that there is no transport of controlled substances across state lines.
The inconsistency between state and federal regulations in the cannabis industry may take some years to resolve. But as the industry matures and consolidates, the 20-year patent term works to the advantage of businesses that have patented their commercially valuable technologies. In addition, the cannabis industry is global. The uncertainty in the United States should not be a disincentive for companies to seek patent coverage internationally, for example, Canada, where cannabis is legal.
Trade Secrets Protection
Trade secrets are a third type of IP protection, for information providing economic benefit to a company if maintained in secret. Trade secrets are an alternative to patenting technical information; additionally, trade secret protection may also be used to safeguard a company’s business information, such as customer lists, which cannot be patented.
For technical information, maintaining a trade secret requires implementing reasonable precautions to maintain the information as a secret, such as restricting visitor access to a company’s research and production facilities, and only sharing confidential information with employees, consultants and potential investors and collaborators on a need-to-know basis, subject to a confidentiality agreement. Any contractual obligation to maintain confidential information in secret should survive expiration of the agreement, and employee agreements will ideally reference catalogued trade secrets.
Factors that would weigh in favor of maintaining technical information as a trade secret over patenting them include: difficulty for competitors to independently discover, reverse engineer or copy technology; ease in detecting infringement by competitors; expected commercial lifetime that is much shorter or much longer than the 20-year patent term; and available state court enforcement of trade secrets in legalized states. One caveat for trade secret protection is that a third party who independently invents the same technology may be able to file and obtain a blocking patent.
Subject to concerns regarding federal court enforcement of cannabis patents, a company might consider filing patents on products and methods of using those products (e.g., cannabidiol formulations or methods of treating epilepsy with CBD), because products and methods of use are more susceptible to reverse engineering or copying. Alternatively, a company might consider maintaining methods of production or manufacturing as a secret, because manufacturing methods are harder to reverse engineer, and are also more difficult to detect infringement and enforce.
There are many avenues for companies in the cannabis space to protect their intellectual property rights. Whether it be your brand, the product itself or the methods used, taking the necessary steps to ensure protection is critical in a fast-moving and highly competitive cannabis industry.
—Amanda Abelmann, an extern in the intellectual property group in Duane Morris’ Philadelphia office, contributed to this article.
Christiane Campbell, a partner with the firm, counsels clients on the development, management and protection of their most valuable assets: their brands. She has worked with some of the world’s most recognizable brands to develop strategies for brand development, clearance, protection, monetization, expansion and enforcement.
Vicki G. Norton, Ph.D., is co-chair of the firm’s life sciences and biotechnology practice group. She practices in the area of intellectual property law with a focus on biotechnology and chemical patent counseling and litigation.
Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.