Photo of Alison Malsbury

Every brand needs protection, and Alison extends her knowledge of intellectual property and corporate law to our cannabis clients, ensuring their businesses are protected.

With implementation of Canada’s Cannabis Act (the “Act”) set for October of this year, many of our clients owning brands that will be sold in both the United States and Canada are beginning to wonder what the implications of new branding and marketing regulations will be. So far, more than 1,500 trademark applications for cannabis and cannabis-related products have been filed with the Canadian Trademark Office, and that number is certain to grow as legalization rolls out.

The Act, through its regulation of packaging, addresses many of the same concerns as certain state statutes in the U.S.: preventing false and misleading advertising and prohibiting advertising that is appealing to children. Some of the key prohibitions contained in the Act are on testimonials and endorsements, the use of real or fictional people, characters or animals, and branding or packaging that connotes “glamour, recreation, excitement, vitality, risk or daring.” Interestingly, there was discussion in the government’s Proposed Approach to the Regulation of Cannabis of implementing a plain packaging regime, something we’ve long suspected could be applied to cannabis.

The new regulations will require that all cannabis products be packaged in a manner that is tamper-evident, child-resistant, prevents contamination, and keeps cannabis dry. Packaging must be opaque. Pursuant to the Proposed Approach to the Regulation of Cannabis, licensed processors must label the package in which the cannabis product is contained in both French and English, and the following information would be generally required:

  • Name and contact information of the processor who packaged the product;
  • Product description;
  • Product lot number;
  • Product weight or volume, depending on the product class;
  • Packaging date (and expiry date, if one has been set);
  • Recommended storage conditions;
  • THC / CBD content (expressed as the percentage of THC / CBD the product could yield, and by unit or dose, if applicable); and
  • Inclusion of the statement: “KEEP OUT OF THE REACH OF CHILDREN”.

Under the Act, it is prohibited to promote cannabis in a manner that is false, misleading or deceptive, or that is likely to create an erroneous impression about its characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks. This aligns well with what we’ve seen in U.S. jurisdictions with regulated cannabis.

However, interestingly, the Act also prohibits promotion of cannabis brands using foreign media:

“It is prohibited to promote … cannabis, a cannabis accessory, a service related to cannabis or a brand element of any of those things in a publication that is published outside Canada, a broadcast that originates outside Canada or any other communication that originates outside Canada.”

This regulation could have serious implications for brands that are looking to position themselves not only in Canada, but also in other jurisdictions, including the U.S. The Canadian government has made it a priority to ensure that companies cannot evade the Act’s advertising and promotion restrictions by merely promoting the products abroad.

Sponsorship by Canadian cannabis companies will also be prohibited (perhaps even if a particular brand is only sponsoring events or individuals abroad). As such:

“It is prohibited to display, refer to or otherwise use any of the following, directly or indirectly in a promotion that is used in the sponsorship of a person, entity, event, activity or facility:

  • A brand element of cannabis, of a cannabis accessory or of a service related to cannabis; and
  • The name of a person that
    • Produces, sells or distributes cannabis,
    • Sells or distributes a cannabis accessory, or
    • Provides a service related to cannabis.”

Clearly, the implications of Canada’s cannabis advertising regulations will be far-reaching once they are implemented in October. For brands that intend to have a presence in both the U.S. and Canada, it will be particularly important to ensure that no advertisements or promotions produced in the U.S. run afoul of the Act, as they could ultimately jeopardize the license(s) in Canada and open the responsible individuals up to liability. Having an understanding of how Canada’s rules will impact your brand, if you intend to expand beyond the U.S., will be critical in the coming months.

Cannabis Trademark AttorneuyWe’ve gone over the obstacles to obtaining federal trademark protection at length, but given recent inquiries our cannabis trademark attorneys have been receiving lately, it seemed high time to revisit what exactly makes a trademark “strong” or “weak.”

I regularly have clients come to me with catchy marks they or their brand consultants have developed, but are not eligible for trademark protection. There is a spectrum of strength when it comes to trademarks. The distinctiveness, or strength, of a mark will determine both how well the mark performs from a marketing and branding perspective, as well as the level of legal protection to which it is entitled. When a mark is highly distinctive, identifying the owner of the mark as the source of the goods sold, the mark is strong. And when a mark is not inherently distinctive, or when a mark is the same or very similar to one already used by others, the mark is weak. Here are the types of marks on the spectrum, from strongest to weakest:

  • Fanciful Marks: These marks are inherently distinctive and consist of a combination of letters with no meaning; they are invented words. Some examples of famous fanciful marks are EXXON and KODAK. These marks can be more difficult from a marketing perspective initially, because the public must be educated through advertising before they will associate the owner’s goods or services with the mark.
  • Arbitrary Marks: These marks are composed of a word or words that have a common meaning, but have no relation to the goods or services to which the mark is applied. Perhaps the most famous example of an arbitrary mark is APPLE, used on computers. As with fanciful marks, these marks are highly distinctive.
  • Suggestive Marks: Suggestive marks hint at or suggest the nature of a product without specifically describing the product. An example of this type of mark is AIRBUS for airplanes. These marks can be appealing from a marketing perspective, because they require less education of consumers than arbitrary or fanciful marks, but they are also typically entitled to less extensive legal protection.
  • Descriptive Marks: These marks are comprised of words that actually describe the goods or services provided; descriptive marks are too weak to function as a trademark and cannot be registered. Note that it is possible to register a descriptive mark if it has obtained secondary meaning due to use in commerce for some years – in the nascent cannabis industry, however, it is unlikely many marks would meet these requirements.
  • Generic Words: These words and phrases are so inherently descriptive of a product or service as to be incapable of functioning as a trademark; they are the common names of the product or service in question, and cannot be registered.

One of the most common grounds for rejecting a trademark application is that the proposed mark is “merely descriptive.” For example, “World’s Best Cannabis” would be merely descriptive for cannabis and cannot be registered. Trademarks that are merely the name of an individual, for example, are also ineligible for federal trademark protection. So, a name like “Alison’s Cannabis” wouldn’t fly. Similarly (and this is one we see often in the cannabis industry), marks that are primarily geographically descriptive will be refused registration by the USPTO. For example, “Seattle Cannabis Company” and “Washington Grown” are primarily geographically descriptive and thus not eligible for federal trademark protection.

And on the flip-side, marks can be rejected for being deceptively misdescriptive as well. Interestingly, the USPTO, in its online guidance and resources, gives the following example of a deceptively misdescriptive mark: “[T]he mark ‘THC Tea’ would be deceptively misdescriptive of tea-based beverages not containing THC.” So if you are registering your mark for ancillary goods or services, as we’ve previously suggested, be mindful that including a reference to cannabis in your mark will not render the mark deceptively misdescriptive of those goods or services.

If you’re starting from scratch in branding your company or products, it’s a great idea to run any proposed marks by your trademark attorney before you invest too heavily in brand development. An experienced cannabis trademark attorney will be able to quickly identify marks that are merely descriptive, and can advise whether you run the risk of adopting a mark that is deceptively misdescriptive. And remember, if you don’t intend to obtain a federal trademark registration of your brand, that is still not a reason to adopt a descriptive or weak mark. If your name is a no-brainer, chances are that someone else has already thought of it and used it as well. Or if they haven’t adopted it yet, they likely will down the road. When the market becomes flooded with similar names, it becomes difficult for consumers to tell them apart. Putting in the initial work to develop a strong brand is always worth the effort, especially in a rapidly growing legal cannabis industry.

cannabis marijuana brandingLast week, Lagunitas Brewing Company announced the launch of Hi-Fi Hops, an IPA-inspired sparkling water in collaboration with CannaCraft (under its AbsoluteXtracts brand), a Santa Rosa-based cannabis company. Both the LAGUNITAS and ABSOLUTEXTRACTS marks appear on the packaging for the beverage, and so I thought this would be a great opportunity to explore some of the considerations that should go into any co-branding deal.

Co-branding is a common marketing strategy wherein two or more brands collaborate to create a product that is representative of both or each of the brands. Co-branding can be a great opportunity for publicity and can also serve as an opportunity to introduce one of the co-brander’s customers to the other co-brander’s product. It can be an effective tool for expanding the reach of your brand into other markets if executed properly. Co-branding can also serve to enhance the value of the goods if both of the brands are well-known and respected by their consumers.

But what happens if the deal isn’t well thought out? Co-branders run the risk of diluting their brand, or if they are a small company, finding their brand overshadowed by the larger, better established brand. If an agreement is poorly drafted, you may find yourself in a situation without much control over the product or its quality, and a sub-par product could ultimately lead to negative publicity and reputation damage.

With these points in mind, here are some of the things you should be thinking about before entering into a cannabis co-branding deal:

  1. Choose your co-branding partner wisely.

We’ve talked about this in the context of IP licensing generally, but the same rules apply here. Make sure you feel comfortable with the company you intend to partner with. In a co-branding deal, it’s important that the products or services offered by each co-brander are complementary and that each party stands to gain through affiliation with the other. Ask yourself whether partnering with this other company would expand your consumer base and introduce potential new customers to your product, and whether your brand would provide the same benefit to your partner. The goal with these types of deals is to create a win-win situation for both parties.

In the cannabis industry in particular, it’s also important to make sure that your potential co-branding partner is on solid legal footing. Do your due diligence, and make sure they’re operating in compliance with all applicable state and local laws. If they aren’t, you run the risk not only of reputational harm, but of legal liability.

  1. Don’t relinquish too much power.

While it’s fine and may make sense for one partner to take the lead in pushing the co-branding deal forward, it’s important for both partners to have input into how the deal is executed. Don’t ever turn over all decision-making authority to your partner, as it’s important to exercise control over how your brand is used at all times. Failure to police your trademarks could lead to big issues down the road.

  1. Make sure your agreement is solid and your intellectual property (IP) is protected.

Finally, as always, make sure you aren’t relying on a template or generic agreement. Co-branding agreements are all unique and can be more complex than your typical trademark licensing agreement, not to mention the added complexity of one or more parties being in the marijuana industry.

These agreements will have some similarities to trademark licensing agreements, since each party will, in a sense, be licensing their brand to the other. It is therefore important that each party maintain independent control over their own marks and how they are used throughout the deal. Neither party wants its mark(s) to be diluted or tarnished through the co-branding venture. And each party needs to come out of the deal with all of its IP ownership rights intact.

Control, as I mentioned above, is one of the key considerations in any co-branding deal: Quality control provisions should be fleshed out, and each party should clearly specify how its trademarks are to be used and displayed, where they will be permitted to be used, and how the product will be marketed.

Each party should feel comfortable with the termination provisions of the agreement, and should be able to exit the deal if, for example, sales targets are not met, laws or regulations change in a way that renders the deal legally problematic or legal enforcement actions are taken against either of the parties, if there is infringement or misuse of the trademarks, or if the other party does anything that could negatively impact your brand or tarnish your reputation. To that end, make sure the agreement contains comprehensive representations and warranties from each party, as well as mutual confidentiality and indemnification provisions. Some of these provisions should survive termination of the agreement.

This is just the tip of the iceberg in putting together a cannabis co-branding deal. These types of ventures can be exciting and drum up a lot of publicity, which has the potential to greatly benefit both parties. But it is essential to carefully consider how your co-branding agreement is drafted, and to make sure that you and your intellectual property are adequately protected.

trademark cbd hemp
Official USPTO position on industrial hemp CBD marks.

With the cannabidiol (CBD) industry continuing to boom, I’ve had numerous inquiries from my CBD-selling clients regarding federal trademark protection for their CBD brands, particularly when the CBD they are selling is derived from Farm Bill hemp and grown in accordance with a derivative state program.

I’ve discussed the “legal use in commerce” requirement for federal trademarks at length in other posts, so I won’t go into too much detail here. But the gist is that in order to procure federal trademark protection for your mark, the goods and/or services for which you are claiming trademark protection must be legal pursuant to federal law. Because the manufacture, distribution and dispensing of cannabis is illegal under the Controlled Substances Act, the lawful use in commerce requirement cannot be met.

But what about CBD? This is the question I’m hearing on a near daily basis. If my CBD products are “legal under federal law,” why can’t I obtain federal trademark protection? To begin with, the federal legal status of CBD is still tenuous and complicated, and the USPTO’s position here only serves to affirm that. But there is one particularly informative case that helps to illustrate the USPTO’s position on CBD trademarks.

On December 5, 2014, Stanley Brothers Social Enterprises, LLC filed a U.S. federal trademark application for CHARLOTTE’S WEB, to be used on “plant extracts, namely, hemp oil sold as a critical component or ingredient of dietary supplements.” That application has been alive and the subject of multiple office actions from the examining attorney since, including a final office action that was issued on April 20th of this year (harsh). This final office action is very interesting, because the refusal to register the mark was made final for unlawful use in commerce on two grounds: Lack of compliance with the Controlled Substances Act (CSA) and lack of compliance with the federal Food, Drug & Cosmetic Act (FDCA). I’ll take each of the USPTO’s lawful use determinations in turn.

The Examining Attorney used a pretty standard argument in deeming the Applicant’s goods unlawful pursuant to the CSA stating:

“[i]n this case, the items or activities in the application with which the mark is used involve a per se violation of federal law. See In re Brown, 119 USPQ2d at 1352. Specifically, federal law prohibits the sale, distribution, dissemination and possession of marijuana. That is, under the [CSA] prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations.”

The Examining Attorney goes on to note that the Applicant’s specimens submitted with its application show that the “goods are dietary supplements infused with or which are comprised of cannabidiol (CBD) which is derived from what applicant has called industrial hemp plants which is grown in Colorado.” The Applicant also provided a statement to the USPTO that the goods are “comprised of CBD derived from the plant Cannabis sativa L and that applicant obtains the CBD from more than just the mature stalks and sterilized seeds of the plant. Applicant processes the entire plant including the resins, stalks, stems, buds and flowers …”. Therefore, the Examining Attorney deemed Applicant’s CBD to be derived from the portions of the hemp plant that are unlawful under the CSA.

Interestingly, the Applicant also made a tertiary argument that CBD is a cannabinoid found in other plants which are not members of the Cannabis Sativa L family such as Echinacea (coneflower), Heliopis helianthoides (oxeye), etc.. Notwithstanding the accuracy of these assertions, this is an argument I’ve seen made on other trademark applications. But the key here is that the CBD contained in Applicant’s goods is not obtained from any of these other plants. It is obtained from Cannabis sativa L, and therefore falls within the definition of marijuana under the CSA.

The Examining Attorney also determined that the Applicant’s goods are not in compliance with the FDCA, which prohibits the introduction or delivery for introduction into interstate commerce of a food to which has been added a drug or a biological product for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public. 21 U.S.C. §331(11). The U.S. Food and Drug Administration (FDA) has stated that substantial clinical investigations of cannabidiol have begun and thus products containing CBD may not be sold as dietary supplements. Applicant plainly indicates that its goods are a dietary supplement, both in its application and on its website, and the Examining Attorney analyzes why CBD does not fall into any of the FDA exceptions that would allow it to be marketed as such.

In wrapping up his analysis, the Examining Attorney made a final argument entitled “The 2014 Farm Bill Did Not ‘Legalize’ Hemp on a National Level.” The Applicant here argued that “its goods are not prohibited under either the CSA or the FDCA [because] the 2014 Farm Bill, 7 U.S.C. Section 5940, has effectively overruled the FDCA as well as the CSA by declaring that hemp is a legal product at the federal level and that all things made from hemp are, therefore, legal.” Applicant also argues that the omnibus law prohibits the expenditure of federal funds to prohibit the transportation, processing, sale or use of hemp that is grown or cultivated under the 2014 Farm Bill. Here’s the relevant portion of the 2014 Farm Bill:

“[N]otwithstanding the Controlled Substances Act, or any other federal law, an institution of higher education or a State department of agriculture may grow and cultivate hemp if (1) the industrial hemp is grown or cultivated for the purposes of research conducted under an agriculture pilot program or other agricultural academic research and (2) the growing or cultivating of the industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs.” 7 U.S.C. Section 5940(a).

And here is the Examining Attorney’s succinct response:

“Although applicant is correct that the cited portion of the Farm Bill states that ‘industrial hemp’ is Cannabis sativa L which is less than 0.3 percent tetrahydrocannabinol (THC) on a dry weight basis, the Farm Bill did not make ‘hemp’ and everything made or extracted from hemp ‘legal’ on a nationwide basis as applicant contends. Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, merely allowed universities and/or state departments of agriculture to create pilot programs to grow Cannabis sativa L with a THC content of less than 0.3 percent for purposes of conducting academic or scientific or marketing research. However, this marketing research did not extend to general commercial activity nor did it make all hemp related goods ‘lawful’ on a federal level. The 2014 Farm Bill provision, for example, did not allow those participating in a state pilot program to sell seeds or plants to consumers in other states nor did it allow for goods made under the program, such as applicant’s dietary supplements, to be sold in states which have not established similar pilot programs … The Federal Register notice goes on to state that Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, did not amend the federal Food, Drug and Cosmetic Act’s requirements for obtaining FDA approval for new drug applications or the requirements for conducting clinical trials and research prior to such approval, or the FDA’s oversight of marketing claims such as those in the Warning Letter addressed to applicant. With regard to the Controlled Substances Act, the Farm Bill provision did not alter the provisions of the CSA that apply to the dispensing, distribution and manufacture of drug products containing controlled substances. ‘Manufacturers, distributors, dispensers of drug products derived from cannabis plants, as well as those conducting research with drug products, must continue to adhere to CSA requirements.’ Federal Register, Vol. 81, No. 156 (August 12, 2016). With regard to ‘marijuana,’ a Schedule I prohibited substance, this means that anything which falls within the statutory definition of marijuana, 21 USC Section 802(16), cannot be distributed or disseminated in interstate commerce. This means that if applicant is extracting CBD from all parts of the Cannabis sativa L plant, as applicant has stated, then the goods are marijuana and cannot be sold in interstate commerce under the CSA.”

So, there you have it. The USPTO’s take on CBD derived from Farm Bill hemp is that it is, for the reasons outlined above, ineligible for federal trademark protection.

We’ve written (and talked) extensively about the dos and don’ts of filing cannabis-related state and federal trademarks, and we all know by now that you cannot obtain a federal trademark registration for goods or services that are not lawful pursuant to federal law. But I’ve heard a lot of creative arguments in this space, and have had many clients indicate an interest in challenging the status quo at the United States Patent and Trademark Office (USPTO).

Unfortunately (or fortunately, depending on how you look at it), the Trademark Trial and Appeals Board (TTAB) has handed down numerous opinions of precedent that lay forth the USPTO’s position on the “lawful use in commerce” requirement in detail. In this post, I thought it would be useful to breakdown the TTAB’s analysis on this issue via their In re PharmaCann LLC opinion, which was issued in June of 2017.

marijuana cannabis trademark
No lawful use in commerce = no trademark.

In the PharmaCann case, the Applicant sought registration of two trademarks: PHARMACANN and PHARMACANNIS, both for “retail store services featuring medical marijuana,” in International Class 35, and “dispensing of pharmaceuticals featuring medical marijuana,” in International Class 44. The Examining Attorney refused registration of both marks pursuant to Sections 1 and 45 of the Trademark Act, 15 U.S.C. §§ 1051 and 1127, on the ground that Applicant could not allege a bona fide intent to make lawful use of the marks in commerce because the services identified involved the distribution and dispensing of cannabis, which is a controlled substance whose distribution and dispensing are illegal under the federal Controlled Substances Act (CSA), 21 U.S.C. §§ 801 et seq..

In its opinion, the TTAB pointed out that it has “consistently held that, to qualify for a federal … registration, the use of a mark in commerce must be ‘lawful’.” In re JJ206, LLC, 120 USPQ2d 1568, 1569 (TTAB 2016) (affirming refusal to register POWERED BY JUJU and JUJU JOINTS for cannabis vaporizing and delivery services for lack of lawful use in commerce). The TTAB further elaborated that for a mark to be eligible for federal registration, “any goods or services for which the mark is used must not be illegal under federal law.” In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016). And even if an Applicant files on an intent-to-use basis (meaning they intend to use the mark in commerce in the near future but have not done so yet), if the identified goods or services with which the mark is intended to be used are illegal under federal law, “the applicant cannot use its mark in lawful commerce, as it is a legal impossibility for the applicant to have the requisite bona fide intent to use the mark.” JJ206, 120 USPQ2d at 1569.

In general, registration will not be refused for lack of lawful use in commerce unless either “(1) a violation of federal law is indicated by the application or other evidence …, or (2) when the applicant’s application-related activities involve a per se violation of a federal law.” Brown, 119 USPQ2d at 1351. In the case at hand, the TTAB deemed the Applicant’s marijuana distribution and dispensing activities to be a per se violation of the CSA. The analysis here was pretty straightforward, where the CSA prohibits, among other things, manufacturing, distributing, or dispensing controlled substances (21 U.S.C. § 841(a)(1)), and where marijuana is a Schedule I controlled substance under the CSA. 21 U.S.C. § 812(c) Schedule I (c)(10).

The Applicant here made two arguments in opposition to the TTAB’s position. The first argument was that “[s]ince 2009 the Department of Justice has consistently refused to treat medical marijuana as an illegal drug by consistently refusing to enforce the Controlled Substances Act against it.” In making its argument regarding the federal government’s lack of enforcement against medical marijuana businesses operating in compliance with state law, the Applicant relied on the (now rescinded) Cole Memorandum. But the TTAB clarified that it had previously decided in JJ206 that the Cole Memorandum “provides no support for the registration of a trademark used on goods whose sale is illegal under federal law,” and that this determination applied with equal force to the Applicant in this case’s intended use of its marks for distributing and dispensing medical marijuana.

The Applicant’s second, and more novel, argument was that “Congress has taken the same position as the Department of Justice,” because in the Consolidated and Further Continuing Appropriations Act of 2015 (as renewed in the Consolidated Appropriations Act of 2016, subsequent continuing resolutions, and in the Consolidated Appropriations Act of 2017), Congress has prohibited the Department of Justice from utilizing funds to prevent states that have legalized medical marijuana from implementing their own state laws authorizing the use, distribution, possession, or cultivation of medical marijuana. The Applicant’s argument was that Congress’ decision not to fund the DOJ to enforce the CSA against medical marijuana, “it would make no sense and serve no purpose for the Board to take a different position…”.

The TTAB, however, found this second argument equally lacking, and relied on United States v. McIntosh (833 F.3d 1163, 1169-70 (9th Cir. 2016)) for its analysis. In that case, the court concluded that the Appropriations Acts and the Rohrabacher-Farr Amendment did not make medical marijuana legal under the CSA. The TTAB applied that conclusion to the case at hand and rejected the Applicant’s argument.

These TTAB opinions are instructive in that they give us a clear view into how the USPTO is lawful use in commerce requirement; although the legal status of cannabis and particularly the federal government’s enforcement efforts remain murky, so long as marijuana remains a Schedule I controlled substance, federal trademark protection will not be available.

For other posts on cannabis trademarks, check out the following:

cannabis trade secretIn the world of intellectual property (“IP”), there are four categories under which your IP may fall:

  1. A trademark is any word, phrase, symbol and/or design that identifies and distinguishes the source of the goods of one party from those of others. Similarly, a service mark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of a service rather than goods. Trademarks are your brand names, and can remain in place forever so long as you are making actual, lawful use of your mark in commerce.
  2. A patent is a limited duration property right relating to an invention that is granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention. Patentable materials may include machines, manufactured articles, industrial processes, chemical compositions, and certain plant genetics. Design patents will give the patent holder exclusive rights to exploit the patented materials for 15 years from the filing date, and a utility patent or plant patent will be valid for 20 years from the filing date.
  3. Copyrights protect original works of authorship including literary, dramatic, musical, and artistic works, including poetry, novels, movies, songs, computer software, and architecture. Generally, for works created by an individual, copyright protection lasts for the life of the author, plus 70 years. For works created anonymously, pseudonymously, and for hire, protection lasts 95 years from the date of publication or 120 years from the date of creation, whichever is shorter.
  4. Trade secrets (the subject of this post) in general can be comprised of any confidential business information that provides a company with a competitive edge. Trade secrets can include manufacturing or industrial secrets like recipes, formulas, processes or techniques, as well as commercial secrets, such as client lists or business plans that have commercial value because of their secrecy. Unauthorized use of this information by anyone other than its owner is an unfair practice and violation of the trade secret. The key to trade secret law is that something is only regarded as a trade secret so long as it’s kept secret.

Many clients come to me with the belief that patent protection is more valuable than trade secret protection, but that isn’t always the case. Where patent protection is available for a limited duration, trade secrets can provide their owners with protection so long as the secrets are not disclosed to anyone. In some cases, this can be a very long time. Perhaps the most famous example of a trade secret is the recipe to Coca-Cola. Coca-Cola claims this to be the “world’s most guarded secret,” as it is known to only a few key employees at any given time. The recipe is locked in a purpose-built vault in the company’s museum in Atlanta.

If Coca-Cola had opted instead to patent their recipe, it would have been disclosed to the public, and they would have had the ability to exclusively exploit the recipe for only 20 years. Protection under trade secret law, however, will benefit them for much longer, but the key is in taking adequate steps to prevent trade secrets from being revealed. In a case for misappropriation of trade secrets, one of the factors considered by the court is whether the owner of a purported trade secret implemented adequate measures to keep their secrets secret.

Steps that can be taken to protect trade secrets include limiting the number of individuals who know the secret, implementing security protocols in the facility that holds the secret, and requiring employees and others with access to the trade secret to sign a thorough confidentiality and non-disclosure agreement (NDA). These types of agreements are used extensively by marijuana businesses.

Although trade secrets abound in the cannabis industry, information and techniques have also been shared quite freely for a very long time. And information that has been disclosed is not subject to trade secret protection under the Uniform Trade Secrets Act or the Defend Trade Secrets Act of 2016. However, even if you determine that your recipes or processes or other business information doesn’t qualify for trade secret protection, they may still have value as proprietary information, which can be licensed. For this reason, we encourage all of our clients to have confidentiality and non-disclosure agreements in place with their employees and with other key individuals with whom they transact business. Even if you don’t have a claim for misappropriation of trade secrets under trade secret law, you can still go after someone in court to try to stop them from disclosing your confidential information or for damages for having disclosed such information pursuant to your NDA.

The necessity for keeping trade secrets secret is why it is important to consult with an IP attorney as early in your development process as possible to determine whether patent or trade secret protection makes the most sense. And regardless of whether your business materials meet the criteria for trade secret protection, every company should have a form NDA that they can have employees and others exposed to confidential information sign.

marijuana cannabis brand licenseLast week I had the pleasure of attending the International Trademark Association’s (INTA) Annual Meeting in Seattle, where trademark practitioners from around the world convened to geek out on all things brand-related. One of the prevalent topics of conversation was trademark licensing. While we’ve discussed at length some of the challenges of entering into Intellectual Property (“IP”) licensing deals in the cannabis industry, I thought it would be helpful to discuss a few of the key licensing terms discussed at INTA that should be negotiated in any trademark licensing deal, regardless of the industry.

  1. Royalties

How payment will be structured is a pillar of any trademark licensing deal, and the way that royalties are structured can often be a source of contention between the licensee and licensor. In the cannabis industry, you’ll need to contemplate what royalty structures are permissible under state cannabis laws, and what implications a royalty based on revenue will have on your state cannabis license. For example, in Washington State, a licensing deal with a royalty structure based on profits or revenue would trigger the “true party of interest” requirements under the Liquor and Cannabis Board’s regulations. In California and Oregon, taking a royalty based on revenue or profit will qualify you as a “financial interest holder” in a licensee.

Other considerations include whether to ask for a lump sum payment up front (which is something that a licensor may be in favor of, but that might be burdensome to a start-up licensee). You’ll also need to determine the frequency of payments and what kind of accounting must be provided to the licensor.

  1. Use of the licensed assets

In general, a licensor will want to exercise as much control as possible over the use of the licensed IP, where a licensee will likely prefer more flexibility. This can be a particularly difficult issue in a highly regulated industry like cannabis, where state regulations often limit the control a licensor can exercise over certain elements of the use of the IP. It is therefore critical for both parties to have a solid grasp of state cannabis regulations as they pertain to the use of the licensed IP.

  1. Quality control

As with use of the licensed assets, a licensor will want to maintain as much control over the quality of the products sold under its licensed brand(s) as possible. In fact, licensors must exercise sufficient control over the quality of the products made pursuant to the license, or risk losing their trademark rights to abandonment. A licensee on the other hand will typically prefer less stringent quality control provisions and will at least seek provisions that provide it with an opportunity to cure or mitigate before license termination. A licensor may require that provisions granting an opportunity to cure be limited in certain ways, such as in the event of a breach that would cause serious reputational harm to the licensor.

  1. Indemnification

Indemnification and limitation of liability are often heavily negotiated, where a licensor will both parties will typically require indemnification from the other for a variety of IP infringement and product liability problems.

  1. Morality

This is one of the more interesting topics that was discussed at INTA, and is one that seems particularly relevant given many current events. A morality clause may be included in any licensing agreement, but is particularly relevant in agreements involving individual celebrities that are collaborating with brands. These agreements are becoming more and more prevalent in the cannabis industry. A morality clause will provide for termination of the agreement in situations where a party’s moral conduct does not conform with the standards provided for in the agreement. This could be limited to criminal acts, but need not be. The key is to clearly spell out all scenarios that could lead to termination in the agreement, and if a party to an agreement poses particular concerns to the other side, those concerns may be addressed through a morality clause.

Cannabis licensing deals are unique, and although these types of clauses may appear in any licensing agreement, the ways in which the parties approach them will be different, and will vary from jurisdiction to jurisdiction. As always, this makes it critical to incorporate a cannabis regulatory analysis into any IP licensing deal.

For more on cannabis IP licensing, check out the following:

marijuana cannabis intellectual property
Clearly NOT our style.

Last Thursday, my colleagues Vince Sliwoski, Mike Atkins, and John Mansfield and I put on a webinar addressing the unique intellectual property issues faced by companies in the cannabis industry. If you missed the live broadcast, it’s available here. We received many great questions during the presentation, but an hour and fifteen minutes simply wasn’t enough time to answer all of them. So this post will address some of the questions that were asked, but not answered, during the webinar.

What is the difference between a trade name and a trademark?

A trade name is equivalent to a “doing business as” name, or a fictitious business name. It is an assumed name under which a company does business, and it typically registered at the local and/or state level. A trademark, on the other hand, can be registered at either the federal or state level and is used to protect your brand name. A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Owning a registered trademark gives the owner certain rights, including the right to prevent others from using confusingly similar marks on the same or similar goods or services. A trade name, even if registered, does not bestow any of these rights on the trade name owner, although use of a trade name may generate common law trademark rights.

Aren’t all federal trademarks of cannabis products unenforceable because sales of cannabis in interstate commerce are prohibited?

Yes. One of the requirements for federal trademark registration is lawful use in interstate commerce. Cannabis is a Schedule I drug pursuant to the Controlled Substances Act.

Can you obtain trademark protection for ancillary, information services related to a cannabis industry brand? What if that brand is identical to one used on cannabis products?

Yes. So long as the goods or services for which you intend to register your mark are lawful pursuant to federal law (i.e. they do not violate the Controlled Substances Act), you are eligible for federal trademark protection.

Does TM protection require use, or is prospective use sufficient? 

Federal trademark registrations may be obtained through either use, or an intent-to-use. Note that an intent-to-use trademark application requires a bona fide intent to use the mark lawfully in commerce at the time of filing.

How do you report someone infringing on your trademark or intellectual property?

There is no system for “reporting” infringement. It is the responsibility of the trademark owner to enforce their own rights, which is typically done through cease and desist letters and, in more extreme cases, through litigation.

Can a company trademark a name, phrase or slogan that consists of common industry words (i.e. “Natural Grown Cannabis”)?

Generally, no. In the example above, all of the words are descriptive of the goods that are likely being sold – trademark protection is not granted to marks that are “merely descriptive.” Generic and descriptive terms should be avoided when choosing a brand that is eligible for trademark protection.

Regardless of a company’s inability to currently obtain federal trademark protection, once cannabis is federally legal, will that company be able to assert priority based on prior use, and therefore prevent all others from using their mark?

Possibly, but this is a complicated question. First, common law rights are often geographically limited to the area in which the mark has been used. Given that cannabis is currently regulated state-by-state, most brands are used only in certain states. Furthermore, trademark protection requires lawful use in commerce – it is unclear how the USPTO and/or federal courts would view common law trademark use that was not lawful under then-existing federal law.

If a brand successfully secures a trademark in one cannabis-legal state, can they also secure trademarks in other cannabis-legal states, even if they’re not currently selling or operating in those other states?

No. Nearly all states require lawful use in commerce in that state in order to secure state trademark rights.

These questions are only a handful of those we received during the webinar, and we intend to address additional questions related to copyright, patent and trade secrets in the coming weeks. Stay tuned!

San Luis Obispo California marijuana cannabis

As of May 1, the City of San Luis Obispo is one step closer to permitting adult-use cannabis retail stores. At its most recent meeting, council members approved the first reading of a draft ordinance intended to regulate marijuana businesses. Currently, Ordinance 1633 which was adopted in March 2017, expressly prohibits all commercial and industrial, medical and recreational cannabis activity within city limits.

Pursuant to Ordinance 1633, the Council directed staff to monitor developments in other jurisdictions, monitor development at the federal level, engage with the community regarding various land use and taxation issues, and return to the City Council with a recommendation. We now have those recommendations, which would establish new Municipal Code provisions that would become effective if a cannabis revenue measure is placed on the November 2018 General Election ballot and approved by voters.

Specifically, staff recommended “repealing the current ban on commercial cannabis business activity and establishing standards to protect public health and safety regulating personal cannabis cultivation, cannabis business operators, and permitted cannabis business activities in the City.” Staff also recommended land use regulations for commercial cannabis activity and personal cultivation and provided for the creation of overlay zones where the proposed regulations would apply.

Before regulations are adopted, though, staff will still need to return to City Council with additional implementing measures, including zoning map amendments for the proposed overlay zones, criteria for ranking permit applications, and a fee schedule for applications and annual licenses.

A summary of the proposed ordinance was provided in the Staff Report as follows:

  1. Allows for access to medical and recreational marijuana in the City, with storefront and delivery options (at least one storefront will be reserved for a holder of a medicinal retail license)
  2. Prohibits onsite consumption
  3. Establishes a two-step process requiring prospective business operators to be certified and ranked prior to applying for a land use permit
  4. Includes requirements for energy and water efficiency, and limits total amount of cultivation, to ensure consistency with City climate action goals
  5. Limits manufacturing uses to non-volatile extractions only
  6. Limits cultivation to indoors only, and total City-wide amount of cultivation allowed to 70,000 square feed of total canopy coverage within indoor areas, cumulatively (includes total canopy of either horizontal or vertical growing situations)
  7. Provides for the creation of overlay zones where cannabis business activity may be permitted, and buffers within those overlay zones for cannabis retail stores of 300 feet from residential zones, and 1,000 feet from schools, and parks
  8. Requires retail stores to be located at least 1,000 feet apart
  9. Only three retail storefronts, which must be on arterial streets, will be allowed within the City

According to the City Council, they intend to adopt regulations by early summer of 2018, but given that the voters must approve a tax revenue measure in November in order for the ordinance to go into effect, we’re still looking at quite some time before the City begins accepting permit applications. We will keep you posted!

marijuana cannabis trademark

An issue we’ve seen with increasing frequency among clients and prospective clients alike is a misunderstanding of the basic requirements for obtaining federal trademark protection in the United States. We’ve worked through the issues surrounding federal registration of cannabis and cannabis-goods before, and it is common practice in the cannabis industry to obtain federal trademark protection for ancillary goods and services that do not violate the Controlled Substances Act. But the key to obtaining such trademark protection is that you must either be using the applied-for mark in commerce, or you must have a “bona fide intent” to do so. This post will explore what exactly it means to have a bona fide intent to use a mark in commerce, and what level of proof will be required to substantiate it.

A common scenario is that a cannabis business owner thinks of a name that sounds great–one they would ideally like to use on their cannabis goods and services–but they know they can’t obtain federal trademark protection for anything that is federally illegal. So, they start brainstorming similar goods and services for which they could register, oftentimes looking to large, established companies’ trademark registrations for inspiration. The problem, however, is that the cannabis company often does not have a plan in place for actually selling those goods or services. This can be a big problem.

Recall that there are two bases on which one can file a U.S. federal trademark application: actual use or intent-to-use. An application based on actual use requires proof of that use in the form of photo specimens showing the mark on the goods and a date of first sale. An intent-to-use application, on the other hand, requires “only” that the applicant have a bona fide intent to use the mark in commerce. This is a great tool for start-ups to ensure that their brand is protected while they’re getting their business off the ground. But it also raises the question of what truly constitutes a “bona fide intent” to use a mark?

Section 1(b) of the Trademark Act allows federal trademark applications to be filed based on a “bona fide intent” to use the mark in commerce, and this intent must be stated in the application under penalty of perjury. The Act further states that an intent-to-use trademark filing must be “under circumstances showing good faith.” This language indicates that there must be some objective evidence of good faith, a position that courts have consistently agreed with.

While the USPTO does not require that an applicant submit proof of their bona fide intent at the time of application, an application may be challenged on the basis of lack of bona fide intent at the time the application was filed. This is why it is critical to be able to prove your bona fide intent to use the mark in commerce at the time of filing.

Case law, including Honda Motor Co. v. FriedrichWinkelmann, provides some guidance for applicants who are unsure if they’ve met the threshold of having a bona fide intent to use their mark in commerce, and helps us understand what types of objective evidence of a bona fide intent must be shown. The Honda case involved an opposition by Honda to FriedrichWinkelmann’s application to register VIC for “vehicles for transportation on land, air or water” and related goods. The Trademark Office in this case stated that in order to raise a genuine issue of material fact as to its intent to use on a motion for summary judgment, an applicant must rely on specific facts that establish the “existence of an ability and willingness to use the mark in the United States to identify [the goods in the application] at the time of the filing of the application.”

This case, among others, reaffirms the importance of having documentary evidence to support your bona fide intent to use the mark in commerce at the time of filing. This evidence may consist of business plans, marketing plans, or correspondence with potential manufacturers, distributors or licensees, but there is no bright line test as to how much or what kind of evidence will be sufficient. When filing a U.S. trademark application, it is important to consult with your attorney about the validity of your intent to use your proposed mark. Sometimes, it may make sense to wait to file until you have a business plan in place, or until your intent is easily substantiated.

If you have any burning questions about this topic, or anything else related to intellectual property protection in the cannabis industry, be sure to tune into our free webinar, “Intellectual Property in the Cannabis Industry” on May 17th from 12pm – 1:15pm PDT. The webinar will be moderated by Vince Sliwoski, and I’ll be joined by John Mansfield and Mike Atkins to talk about trademarks, copyrights, trade secrets, and patents, all in the context of the cannabis industry. Hope to see you there!