Photo of John Mansfield

John represents large and small businesses in complex litigation throughout the country, especially patent, copyright, and trademark disputes. A leading litigator out of Harris Bricken's Portland office, John’s intellectual property cases typically involve representing clients in cannabis, high tech, hardware, software, consumer products, and e-commerce matters.

Cannabis trademark litigation
Can they live together?

A recent post here looked at the “Gorilla Glue” trademark dispute between a cannabis business and a glue maker. As we’ve often seen, the cannabis business gave up its brand, rather than litigating. Sometimes a settlement is the best choice. When the cannabis business is the smaller, newer, less financially-sound company, facing an established brand holder with more resources for litigation, it may be smart for the cannabis business to spend its money on rebranding rather than on litigation. But settlement is not the only option when a cannabis business uses a mark similar to the mark used by a non-cannabis business.

Imagine a hypothetical business, “Naturewave Furniture, Inc.” (“NFurn”). NFurn has been selling furniture for 25 years throughout the United States to consumers who want environmentally-friendly products. In 1995, NFurn federally registered “Naturewave” in international trademark class 20, “furniture.” Though NFurn is a player in the enviro-friendly products market, it is not a household name. Now imagine Naturewave Cannabis, LLP (“NCanna”), an Oregon cannabis producer that also sells branded rolling papers. In June 2016, NCanna registered “Naturewave” with the Oregon Secretary of State under class 131, “agricultural products,” and class 134, “tobacco & smokers articles.”

NFurn sues NCanna in federal court, alleging 1) NCanna’s use of Naturewave infringes on its trademark because confusion with NFurn’s Naturewave® mark is likely, and 2) NCanna’s use of Naturewave® to sell cannabis and rolling papers is diluting or tarnishing its mark. But NCanna has invested heavily in marketing its cannabis products and accessories under the Naturewave name, and its Naturewave cannabis products are popular and profitable. Does NCanna have good defenses to either claim? You bet it does.

The basic question for trademark infringement is whether consumers would mistake the source of the goods. Here, the goods offered by each party—furniture and cannabis—are unrelated. No stores sell both furniture and cannabis and the marketing channels for these two products do not overlap. The customers for both goods are sophisticated, careful shoppers. People looking for enviro-furniture usually spend at least 10 hours before buying a particular item. Cannabis consumers are known for research that borders on the obsessive, as shown by the proliferation of sites like MassRoots, Leafly, and Fresh Toast. Neither company is going to move into the other’s product line. Though NCanna had heard of Naturewave Furniture, the words “nature” and “wave” have different connotations in the different industries. NCanna isn’t branding itself as environmentally friendly, and NFurn isn’t suggesting its furniture will let the buyer “ride a wave.” It is unlikely a customer would think NFurn is the source of the cannabis sold by NCanna, or that one of NCanna’s customers would walk into a natural furniture store looking to buy cannabis.

The claim for tarnishment requires a different analysis. Under trademark law, the owner of a famous trademark can sue for using its mark in a way that dilutes or tarnishes the mark. There is no need to show a likelihood of confusion in a tarnishment claim; you only need to show that your mark is famous and similar to the accused mark. Although it is easier to list famous trademarks—Coke®, Amazon®, Google®, Starbucks®, Xerox®—than it is to define “famous,” generally a highly distinctive mark that is very well-known throughout the market, and has been used extensively and continuously for a long time, can be found to be famous. NFurn argues that NCanna’s use of Naturewave® with a traditionally illegal product will tarnish or dilute its mark. But is Naturewave® “famous” under trademark law? Arguably not, at least on our hypothetical facts. In that case, NFurn would not have a claim for dilution.

The upshot of this imagined case is that NCanna could evaluate NFurn’s lawsuit and know it had solid arguments to defend the case. The strength of the litigation position is, however, only one factor. Ultimately, whether to litigate a trademark dispute or settle or seek a coexistence agreement is a business decision for the cannabis company.

Related posts:

 

 

Cannabis edibles and the FDA
The FDA is the 800 pound gorilla of cannabis edibles.

The Food & Drug Administration (FDA) has only the jurisdiction Congress gave it in the Food, Drug and Cosmetic Act (FDCA). Under this act, the FDA has broad regulatory powers over legal drugs, with more limited powers over food.

Under the FDCA, the FDA categorizes a substance as either a food or a drug depending on how it is labeled or advertised. If labeling suggests the substance is “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, or is an “article[]” (other than food) intended to affect the structure or any function of the body of man or other animals,” the FDA will regulate it as a drug (except as noted below).

Cannabis edibles should stay out of the drug category if possible because drugs are subject to a comprehensive regulatory scheme that controls every part of the process, including formulation, testing for safety and efficacy, pre-clearance, manufacturing, labeling, sales, and recalls. For drug firms, the FDA is the 800-pound gorilla in the room.

The FDA categorizes food as anything people ingest that is not a drug. The FDA’s role in food is essentially hands-off. Though the FDA has promulgated hundreds of pages of food regulations, it mostly relies on food makers to self-enforce these regulations. However, when the FDA learns of regulatory violations it can and will take action.

The food/drug distinction is not always clear. In the Dietary Supplement Health & Education Act (DSHEA), Congress permitted some labeling claims for food (including dietary supplements) formerly limited to drugs. Under DSHEA, the FDA has issued regulations allowing certain specific health claims to be made on foods, e.g., “Three grams of soluble fiber from oatmeal daily in a diet low in saturated fat and cholesterol may reduce the risk of heart disease.” Food makers can also ask the FDA to permit other health claims if supported by scientific evidence. Other claims may be made, e.g., the role of an ingredient intended to affect a structure or function of the human body, under certain limited circumstances.

What does all of this mean for makers of cannabis edibles? If your cannabis label or your advertising does not make claims that bring your product within the FDA’s drug definition, the FDA will not treat your edible as a drug under the FDCA Act. This does not make it federally legal of course; it just means you won’t have to spend time having to deal with the FDA.

What if your edibles are marked with health claims or structure/function claims under DSHEA for cannabis or cannabis components, e.g., THC or CBDs? The FDA has in the past sent warning letters to firms making claims like these:

  • Studies have found CBD to possess the following medical properties: … Antipsychotic – combats psychosis disorders…combats neurodegenerative disorders … Anti-tumoral – combats tumor and cancer cells …combats…depression disorders
  • CBD helps with cancer, multiple sclerosis …diabetes, arthritis, dystonia, Crohn’s disease
  • Treats rheumatoid arthritis

The FDA has said that: “It is important to note that these products are not approved by FDA for the diagnosis, cure, mitigation, treatment, or prevention of any disease. Consumers should beware purchasing and using any such products.” If you make any health claims regulated by FDA for cannabis edibles, you risk federal administrative enforcement action.

For more on what the FDA has done with marijuana, check out the following:

There may though be change on the horizon. FDA Commissioner Scott Gottlieb recently said that “It’s high time [pun intended?] to start looking at rules around the [cannabis] plant, which some states have legalized for medicinal or recreational use.” Gottlieb also predicted that “We’ll have some answers to this question very soon because I think we do bear some responsibility to start to address these questions.”

 

Stay tuned.

 

 

Cannabis patentsOur previous post in this series discussed the legal sources for cannabis patent rights. This post and later posts will address some questions about what patents could mean for the cannabis industry.

Today’s question is: Do cannabis patents create monopolies?

Today’s short answer is: Yes and No, but probably less than you might think.

A patent is a government-created monopoly, giving the patent holder an exclusive right to make, use and sell the patented invention. A patentee doesn’t have to let anyone else use her patent (there is no mandatory licensing in the United States), or even use the patent herself. Once the patent expires, it belongs to the public forever. Though the law abhors a monopoly, patents are an exception. The theory is that granting inventors a few years of exclusivity encourages the creation of products beneficial to society.

A patent is not an unlimited monopoly, however. To start, a patent is only good for a limited time, usually about 20 years from the patent filing date. Since it can take three or more years to get a patent granted, that often means a patent lasts 17 years or less in the real world. Patents cannot be renewed; once the patent expires, anyone can practice it at no cost.  Compared with trademarks, which could have indefinite terms, or copyrights, some of which can last as long as a century, the patent term is short.

Also, only inventions that are new and not obvious can be patented. If something has been publicly used or on sale for at least a year, it’s probably unpatentable by anyone. The legal meaning of “obvious” is different and more complicated than the dictionary definition. For our purposes, if a claimed invention could be readily made by a skilled person who was familiar with the prior art, it is obvious. These two requirements of novelty and nonobviousness are intended to ensure that the patent system narrowly rewards creators, not merely collectors or aggregators of products to which the public already has access.

Perhaps most importantly, a patent’s coverage is often much narrower than it appears. You can consider a patent to be like a real estate deed. The deed for your house may refer to the property at “1st and Main,” but that doesn’t mean you own everything at that address. Your actual property lines are set out in the deed’s legal description, e.g., by detailed surveying designations. Similarly, the scope of a patent is limited by the claim or claims, which are found in the last part of the patent following the words “I claim” or “What is claimed.” Here is a hypothetical cannabis utility patent claim, based on an issued patent:

What is claimed is:

1) A cannabis plant that produces a flower comprising:

[a] a terpene profile where myrcene is not the dominant terpene;
{b] a terpene profile defined as terpinolene, alpha phelladrene, and myrcene;
[c] a terpene oil content greater than 1.5%; and
[d] a CDB content of less than 3%.

Properly interpreting a patent claim is a notoriously squirrely activity. Even if you understand the technical features of the claim, there is an entire body of often-conflicting law on claim interpretation. But one principle is paramount in determining the scope of a claim: the patent covers only inventions that have each characteristic, known in patent law as an “element,” set out in the claim. If a plant had elements [a], [c] and [d], but did not have terpinolene in its terpene profile as required by element [d], it would not infringe that patent.

Our next post will consider more issues about patents and their effects in the cannabis industry.

Cannabis patents
Cannabis patents

In cannabis intellectual property (IP) law, as in most areas of cannabis law, separating the flowers from the weeds is difficult. There is a lot of misinformation available on the internet and elsewhere about whether pot is protectable under patent or similar laws, and what patentability means for the industry.

This post gives an overview of IP protection potentially available for cannabis strains and related plants. Under U.S. federal law, new plant varieties can be protected under the Plant Variety Protection Act (PVPA), as a plant patent under the Plant Patent Act (PPA), or as a utility patent under the Patent Act. Plant varieties could also be trade secrets or subject to contractual (licensing) protection.

PVPA: The Plant Variety Protection Act protects sexually reproduced (by seed) or tuber-propagated plant varieties, except for fungi or bacteria. The statute, which is administered by the Department of Agriculture, usually provides 20 years of almost-exclusive rights after the date on which the plant variety is certified. A variety for which PVPA certification is sought must be new, which is similar to the novelty requirement under the Patent Act. The variety must also be distinct, uniform, and stable, accordingly to USDA regulations. A certificate holder may pursue civil infringement remedies in court.

PPA: The Plant Patent Act protects asexually reproduced (e.g., by cuttings, grafting and budding) plant varieties, which are not tubers. For PPA protection, the Patent and Trademark Office requires that a variety be new, nonobvious, and have some de minimus utility, among other things. These requirements are common to all U.S. patents, and are the subject of extensive statutory and case law interpretation. In addition, a patented plant must differ from known plants by at least one distinguishing characteristic which is more than that caused by different growing conditions or fertility. A plant patent is limited to one genome of the plant, so that mutations or hybrids would not be covered in the patent, but would be separately patentable. Plant patents expire 20 years after the filing date of the application for the patent. A patentee may pursue civil infringement remedies in court.

Patent Act: Utility patents under non-Plant Patent Act law can be granted for plants, seeds, plant varieties, plant parts (e.g., fruit and flowers), and processes of producing plants, plant genes, and hybrids. As with other patents, a variety sought to be patented must be new, nonobvious, and have some utility, among other things. Civil infringement remedies are available in court.

Trade secrets/licensing: Though trade secret protection might be available to plant varieties, the ability of a skilled person to independently reproduce the variety in question could eliminate any protectable secret. Some breeders have sought to protect plant varieties by licensing contracts that purport to limit the use or distribution of the variety. Often known as “bag-tag” or “seed-bag” licenses, these are generally covered by state law.

The PVPA, the PPA, and the Patent Act all provide exclusive rights for 20 years, which can be enforced in court. The PVPA and the PPA differ primarily depending on whether the plant is sexually (PVPA) or asexually (PPA) reproduced. Utility patents may have more stringent requirements for applications than plant patents, but generally offer broader protections than plant patents. In particular, whereas a plant patent has only a single claim that defines the scope of the patent, a utility patent can have multiple claims, each addressing different parts of the plant or ways of using the plant that are disclosed in the specification of the patent. Also, utility patents are available for both sexually and asexually reproducing plants.

IP protection for cannabis plants used to be theoretical, but this changed recently. In the last two years, the PTO has issued plant patents, e.g., U.S. PP27475 P2 (Cannabis Plant Named ‘Ecuadorian Sativa’), and utility patents, e.g., U.S. 9,095,554 (Breeding, Production, Processing, and Use of Specialty Cannabis). In the next installment of the Cannabis Patent Primer, I will discuss what cannabis patents mean to the cannabis industry and try to dispel some of the patent myths common to the industry.

cannabis Intellectual property
I want my own IP….

If you co-own a cannabis business, you probably have a formal operating agreement that sets out who owns what—at least if you’ve been reading this blog. As I noted in my previous blog post, your cannabis company probably owns some intellectual property (IP): trademarks, copyrights, trade secrets, or patents. But who owns the IP, if, as is common, the operating agreement is silent on this issue? You may not have thought much about this, but you should. As any divorce lawyer can tell you, many assumptions about who owns what turn out to be mistaken.

LIke any other kind of property, IP is subject to general default rules that establish ownership, at least to begin with. The default owner of a patent is the human inventor. The default owner of a trademark is the entity (human or not) that uses the mark in commerce. Caution: it is easier to state these IP default rules in the abstract than to apply them in the real world. For example, though there is an ownership rule in copyright law called “work for hire,” it turns out it doesn’t apply to many people who are hired to create copyrightable works. Making mistakes about these default rules can lead to disappointment, or litigation.

You can diminish this risk, however, by making your own IP ownership rules. Virtually all of the default IP rules can be contracted around. A well-drafted IP ownership contract allows the parties to arrange their conduct knowing who will own the resulting IP. It will also discourage those who might try to take advantage of uncertainty to claim ownership of IP.

Co-owners of a business: IP issues arise in connection with a business formation in at least two situations: (1) some or all of the owners come to the business with preexisting IP, like brand names or trade secrets; and (2) the business will create new IP during operation. An IP agreement can define ownership so that the business will not be left without important assets (such as the brand name of the company) if the partner who brought IP to the business decides to leave. It can also provide ways to protect IP owned by the corporation, such as by requiring inventors to assist with patent filings or assign IP rights.

Deals with other businesses: Many deals between businesses have IP consequences. For example, a joint venture to create new growing processes could result in creating trade secrets or patentable inventions. In a distribution agreement, it is common for one party to have a license to use the other party’s trademarks. Determining the ownership of IP is critical when two companies work together.

Employer/employee/independent contractor: Any time a business entity pays a human being to create something, IP ownership issues will arise. Many businesses assume they know the default rules that apply depending on whether the human is called an “employee” or an “independent contractor.” The rules distinguishing these categories, however, vary from state to state, and are notoriously hard to apply. So, an IP agreement should not turn on the classification of the worker. Having a solid IP ownership agreement will allow both parties to concentrate on creating IP, and will lower the risks of disputes if and when the relationship ends.

IP ownership agreements need not be separate documents. The appropriate language can be included in your cannabis company’s operating agreement or even in its employee handbook. If you really want your own IP, however, don’t rely on the default ownership rules.

For more previous posts on cannabis litigation, go here for Cannnabis Litigation: Spotting Criminal Law Issues in Cannabis Cases and here for Cannabis Litigation: How to Avoid IP Disputes by Changing Your Oil Filter.

Cannabis litigationIn a 1970s TV commercial, the Fram oil filter pitchman observed that it is cheaper to change your filter than to rebuild your engine: “You can pay me a little now. Or you can pay him (expensive engine rebuilder) a lot later!” This auto maintenance rule also applies to your cannabis business in the area of intellectual property (IP) litigation. Today’s post is on avoiding expensive IP  litigation later by doing preventative maintenance on your IP now.

The first step to protect your IP is to know that you have it. You may not realize it, but almost every cannabis business has one or more of these kinds of IP assets: trademarks, copyrights, trade secrets, or patents. Even if you’ve never registered your IP, you almost certainly have some combination of the first three IP types, which don’t require registration. But just like your oil filter, you can’t maintain it if you don’t know it is there.

Once you know what you have, the next step is to protect it. Each type of IP is protected differently. Here is an overview that will fit in your glove compartment:

  • Trademarks: Trademarks protect brand names, e.g., “FlyBoy Cannabis,” that signify you as the source of the goods and services you offer. Although trademark rights are established by use of the trademark, not registration, you should still register your trademark with state trademark office(s), and the federal trademark office in some cases. Once you’ve registered your trademark, you should tell the world this is your trademark. Using ® is a good first step, but you should also establish a trademark use policy so that your customers consistently link you with your products. Registering your mark makes it easier to protect your brand in court, and will give notice to infringers that your brand belongs to you.
  • Copyrights: Copyrights protect the expression of a creative idea in a tangible form, not the idea itself. Your copyright applies as soon as your creation goes from your mind into a tangible form, such as writing an article on your computer or creating a CAD drawing of your design. You should take steps, including using the ©, to identify your work as yours. You should also register with the U.S. Copyright office (don’t bother sending your content to yourself in certified mail). As with trademarks, copyright registration gives you increased protection over your rights. Being able to threaten a lawsuit can be a powerful incentive to convince an infringer to stop instead of litigate.
  • Trade secrets: Trade secrets are commercial information, including technical and business information, which give you a competitive edge because they are not publicly known. For example, your confidential process for extraction could be a trade secret, so long as it cannot easily be “reverse engineered.”  The most important step to protect trade secrets is to keep them secret. However, you will likely need to share trade secrets with your own employees, and also with others outside your organization with whom you do business. Thus, nondisclosure agreements are one important feature of a trade secret policy. Depending on your business, you may need to take other steps as well. By the way, you can’t “register” a trade secret.
  • Patents: Although plants are generally patentable, the U.S. Patent Office traditionally refused to patent DEA Schedule I cannabis plants, though this appears to be changing. But many other inventions that can be used with cannabis could be patentable, such as vaporizers, smoking devices, and test equipment. An inventor has no patent rights until he or she files a patent application with the federal patent office (there are no state patents), and these rights won’t be enforceable, if at all, until the patent is granted, usually several years later.

Consider this article a free oil filter for your cannabis business.

 

Cannabis litigationOne of the unfortunate byproducts of cannabis legalization is cannabis litigation. With each passing month of legalization in the states in which our cannabis lawyers operate (California, Oregon and Washington) we see an increase in disputes. The most common cannabis litigation matters are disputes about medical and recreational grows, disputes between former business partners now going their separate ways, disputes between employee and employer, and cases involving cannabis intellectual property. This is the first in a series of posts I will be writing on cannabis litigation.

Today’s topic is criminal law, which to at least some extent, can permeate civil litigation involving any cannabis business. Criminal law is important in civil cannabis cases because conduct that is perfectly legal under state law may well be illegal under federal law. The risk of federal criminal liability means that a cannabis litigator in a civil case should at least consider whether to rely on the 5th Amendment privilege against self-incrimination, which can be asserted in in civil proceedings or in connection with oral testimony, pleadings, or requests to produce documents.

How do evaluate whether to take five, i.e., assert the 5th Amendment? Here is an overview of the three main legal issues to help you analyze whether associating criminal counsel is appropriate in your civil law matter.

1. Prior statements in a civil cannabis case could be admissions of criminal activity in another case: A large part of every civil case is explaining the facts which support your claims, and which contradict your opponent’s. A civil litigant will make statements about facts in her pleadings, in discovery before trial, or in testimony at trial. You should assume that almost anything a litigant or her lawyer says about facts in a civil case will be admissible in a later criminal proceeding, even if the statement is not made under oath. An example might be the opening allegation in a complaint against a business partner in a grow: “Pursuant to an agreement, plaintiff and defendant worked together to cultivate cannabis crops, which they intended to be sold, and did sell, pursuant to this state’s recreational cannabis laws.” Right there you are probably admitting that you violated federal criminal drug laws.

2)         Does testifying to potentially incriminating facts in the civil case waive the privilege? Courts have held that  waiver of the 5th Amendment privilege in a civil case will not waive the privilege in later criminal proceedings. But the practical effect of this principle is limited. Though a defendant who has waived her privilege in a prior civil case could testify in a later criminal case, any prior incriminating statements she made in the civil case can be used against her, even without her testimony.

3)         Risks of asserting the privilege in the civil case: In a criminal case, the fact finder may not infer that a defendant is guilty because she asserted the 5th Amendment. In civil cases, however, a jury may draw negative inferences against a party who declines to testify by relying on the 5th Amendment. So, a lawyer in the civil case might argue to the judge or to the jury: “Plaintiff claimed privilege when asked whether she grew cannabis. Doesn’t this suggest she did grow cannabis?”

Knowing and evaluating the legal issues is only the first step in deciding whether to assert the 5th Amendment. The more difficult next step is forecasting whether a prosecutor—now or in the future—will choose to bring criminal charges for conduct legal under state law.

In part 2 of my series on cannabis litigation I will discuss how early registration of trademarks and copyrights and protection of your trade secrets can help you both avoid litigaiton and prevail should it nonetheless be unavoidable.