Among the many legal issues arising with the legalization of medical and recreational marijuana in California is the protection of cannabis-related intellectual property, namely branding of company trade names as well as their respective product lines and services. For instance, similar to the alcohol and tobacco industries, cannabis-related intellectual property rights can range from cultivators, manufacturers, consultants, investment firms seeking to protect their company brands and associated goodwill, to cannabis accessories and marijuana-infused products, and to even the actual strains of marijuana themselves. Opportunities for branding in this untapped market are seemingly limitless.
When it comes to branding in this context, one of the most important intellectual property is the trademark. But what exactly is a trademark? The Lanham Act, the federal law governing trademarks, defines a trademark in § 1127 as “any symbol, word, or phrase used to identify a product or service.” Think of the Nike swoosh or the slogan “Just Do It.” Both of these are different and strong trademarks. Proper establishment and use of trademarks enables consumers to identify products or services as being of a certain quality by reliably associating the product or service to a particular source. The fundamental goals of trademark law are to protect consumers from confusion and to prevent unfair competition in the marketplace.
Trademarks are clearly important for brands, but how does the owner of a trademark protect it? Trademarks can be protected through: (1) common law rights via use in the marketplace, (2) registration at the state level, and (3) registration at the federal level. Common law trademark rights originate through the use of a trademark in commerce and do not require any registration.
While common law rights only offer limited trademark protection, establishing common law rights through a comprehensive intellectual property portfolio strategy is very important. The more limited protection is because common law rights only expand to the geographical area that the product or service is sold, and common law rights do not provide for many of the remedies available under state or federal trademark protection.
However, given the federal prohibitions and state limitations discussed further below, common law trademark may be one of the most effective means to establish trademark rights. Thus, it is extremely important to implement proper marketing and promotional activities for the respective product or service and properly distributed in the current and anticipated territories of operation. Such activities are critical to establish priority of use and acceptable specimens to evidence the basis of common law trademark rights. More importantly, as state and federal trademark laws evolve to include cannabis marks, such specimens evidencing priority and proper trademark use will be invaluable.
State and Federal Trademark
For a broader range of protection, registration at the state level is recommended. It will soon be possible to gain statewide protection for a cannabis-related mark. The State of California currently has a bill pending, which if passed would allow cannabis-related marks to be registered at the state level. Although, it is important to note that such registration would only protect the mark within the State of California.
On the federal level, the United States Patent and Trademark Office (“USPTO”) oversees registration of all federal trademarks and patents. At this time, the USPTO does not issue federal trademark registration for cannabis-related marks. The federal government still recognizes marijuana as a Schedule I drug, and this stance is not expected to change anytime soon under the current administration.
Despite the USPTO’s stance on cannabis, however, federal registration might be possible for some items. For instance, it is still possible to register a “non-controlled good or service,” so essentially a good or service that might be related to marijuana, but that still has other legitimate uses would be fair game. This loophole gives a significant advantage for diversified brands with products spanning beyond just cannabis products.
In this context of limited or partial trademark protection options, the establishment and enforcement of cannabis brands can be difficult and uncertain. However, the options that are available most be utilized. First and foremost, as discussed above, implementation of a proper marketing plan to establish common law trademark rights is important. Second, brand owners should regularly monitor their marks through Google searches and searches of the USPTO’s trademark electronic search database. Trademark monitoring services are often offered by law firms including ours. This allows brand owners to faster identify potential infringers and enforce their marks based on the intellectual property rights established by way of common law, state or federal protection.
Now, imagine this scenario: you’ve launched a successful line of cannabis vaporizers in Southern California, and you’ve done your due diligence and registered your trademark with the state, only to receive a “cease and desist” letter from a cannabis company in Northern California using the same or similar mark. If the other company began using the mark before you, then it may be able to claim common law rights to its geographical territory of Northern California, and thus still be permitted to use the mark there. However, there are many issues and potential defenses to evaluate before agreeing to cease and desist. For instance, did that company properly use the mark in a trademark manner, is that mark properly associated with a particular good or service that the company is seeking to enforce against, is there potential for consumer confusion when comparing the respective marks and actual uses, etc. Unlike federal trademark registrations that carry a presumption of proper trademark use and priority, common law rights must be specifically analyzed to determine the applicable scope of rights, if any.
There are also other potentially more productive options for dealing with an infringer than jumping into litigation. For example, if one party clearly has superior trademark rights, it may consider licensing the use of its trademark to the inferior party along with specific operational limitations in the license to protect the licensor’s business interests.
Licensing and other Considerations
A licensing agreement can also be useful for cannabis businesses looking to expand into other states that have legalized recreational cannabis. Most legalized states have laws requiring residency within the state to operate a cannabis business, but licensing intellectual property rights could be one way around residency requirements. Licensing agreements can also encompass knowledge of the industry, trade secrets and/or ability to perform specific proprietary cannabis-related services, which could be licensed out through consulting agreements. If you have a successful product or method that you want to expand, licensing agreements are a useful tool for monetization while also protecting the rights in any underlying intellectual property.
Those that are successful in penetrating the cannabis market should also be careful not to violate any federal laws. Trademark holders should not create any licensing agreements that require marijuana to be physically transported across state lines, as this violates the federal Controlled Substances Act. Another set of federal laws to be weary of are the Federal Trade Commission’s Franchise Rules. The Federal Trade Commission requires all franchises to be registered, yet does not allow for marijuana-related franchises, as marijuana is still illegal under federal law. An unintentional franchise can arise where the licensing agreement calls for the licensor exert significant control over the licensee. Therefore, brand owners should be cautious when licensing out their marks to ensure they are not effectively creating a franchise in the process.
In the event that you find yourself on the other side of the transaction, and you are looking to enter into a licensing agreement with a trademark owner, it is crucial that you or your attorney perform the necessary due diligence. You should always ensure that the licensor actually owns the rights to what he or she purports to own. For example, you should investigate what kind of trademark rights the purported owner has as well as the specific products or services the rights purportedly cover.
On the whole, the cannabis industry presents many opportunities to establish and monetize the intellectual property rights.
For more information about KHS’s cannabis and intellectual property services, contact Shahrokh Sheik.
At KHS, we work with business owners in establishing and implementing a proper intellectual property plan and strategy and enforcing their IP portfolio, including without limitation establishing common law rights, identifying and securing state and federal trademark options and registrations, drafting license agreements and so forth. We also represent clients in enforcing trademark rights, including without limitation issuing and/or responding to cease and desists and representing federal and state intellectual property litigation.