Intellectual Property/Branding

Cannabis IP licensingGiven the recent influx of cannabis-IP licensing deals on which we have worked, I thought it important to discuss some of the issues potential licensees often face when negotiating with brand owners.

These licensing deals are complicated and fraught with unique cannabis-related issues. Many companies come to us with such licensing deals expecting the biggest hurdle to be state cannabis law compliance. And though this is certainly a major concern, it’s important to start with the fundamentals by analyzing the validity and strength of the intellectual property itself. With any licensing deal, the first step should be determining who actually owns what intellectual property. This is especially true when it comes to the cannabis industry, where information, strain names, and industry terminology have been shared freely since long before state-level legalization.

Ownership of IP in the cannabis industry is a tricky issue, in large part because the USPTO will not issue federal trademark registrations for cannabis-related marks. Far too regularly, cannabis companies come to us with proposed licensing deals where basic due diligence quickly reveals the licensor simply does not own what it claims to own. A little bit of high-level IP due diligence can save a lot of money.

If you are looking to get a license for another company’s IP, here are the most basic questions you should be able to answer about that other company and its IP:

  • Does the licensor own any federal trademark registrations?
  • If so, what goods and/or services do those trademark registrations cover?
  • Was the description of goods and/or services filed with the USPTO accurate and true? Were there possible misrepresentations?
  • Are the trademark registrations based on actual use, or upon an “intent-to-use?”
  • What representations and warranties is the licensor making (or, often more importantly, not making) regarding the marks?
  • If the licensor doesn’t own any federal trademark registrations, is it licensing someone else’s trademarks?
  • Does the licensor have a master licensing agreement? Do the terms of any proposed sub-licensing agreement mirror that master licensing agreement?
  • What quality control standards will you be held to by the trademark owner?
  • Has the trademark owner warranted to keep all USPTO filings up-to-date?
  • Does the licensor own any state trademark registrations?
  • If so, has the licensor made lawful use of its mark in commerce in the state of registration?
  • Does the licensor have any common law trademark rights? Can the licensor even legally acquire common law trademark rights in your jurisdiction?

This is a substantial list, but it only scratches the surface of the issues you and your cannabis IP counsel must consider before you enter into any IP licensing deal. Cannabis companies are often too quick to skip straight to negotiating commercial terms for a deal, without ever assessing whether the rights they are licensing actually exist. Just like with any other type of property — like a house or a car — a licensor of intellectual property must actually own the rights to that property to be able to confer all or some portion of those rights to another party. Seems basic, but it’s truly shocking to see the deals we’ve seen put together by attorneys who either do not know cannabis or, more often than not, do not know the intricacies (or even the basics) of intellectual property law.

Of course, even after you resolve the fundamental IP issues, you still must resolve the state cannabis law issues. In California, for example, even state trademarks are still not available for cannabis and cannabis products. And we don’t yet know how the soon-to-be-released MAUCRSA draft regulations will impact our options for commercial terms and structuring of licensing deals.

Fortunately, the news isn’t all bad. Though these licensing deals are complicated, there are creative and effective solutions to all of these problems, but those take a firm understanding of both IP and state marijuana laws from the outset.

Cannabis Brand names
Choose your cannabis brand name wisely

If this feels like déjà vu (all over again), it’s probably because earlier this month, I wrote about The Gorilla Glue Company’s lawsuit for trademark infringement against GG Stains LLC out of Nevada. In that case, Gorilla Glue, the manufacturer of a variety of adhesives sold under the “Gorilla” brand and distinctive logo, alleged trademark infringement, dilution, unfair competition, and cybersquatting against GG Strains, which marketed one of its popular strains under the name “Gorilla Glue.” The allegation was that by marketing its cannabis strains under “confusingly similar” names, GG Strains was trading off the goodwill and reputation established by Gorilla Glue over the course of 23 years. The parties ultimately settled the dispute a few weeks ago, and GG Strains will have to cease using the Gorilla Glue marks.

Now, we have another allegation of trademark infringement by Tapatio Foods LLC, the famous American hot sauce brand. Tapatio has filed two separate complaints against TCG Industries, LLC (d/b/a Payaso Grow), alleging federal trademark infringement, federal and state unfair competition, and dilution. Sound familiar? TCG has a cannabis-infused hot sauce called “Trapatio” that bears an image of a “man in [a] sombrero, yellow shirt, and red tie” that is (according to Tapatio) “confusingly similar” to Tapatio’s trademarked images.

For ease of reference, here are several past blog posts relating to trademark infringement, and how to choose a brand that won’t get you sued:

And here are the factors a court will consider in assessing whether one mark is likely to be confused with another, proving trademark infringement (AMF Inc. v. Sleekcraft Boats):

  • Strength of the mark;
  • Proximity of the goods;
  • Similarity of the marks;
  • Evidence of actual confusion;
  • Marketing channels used;
  • Type of goods and degree of care likely to be exercised by the purchaser;
  • Defendant’s intent in selecting the mark; and
  • Likelihood of expansion of the product lines.

The two most basic factors I recommend our cannabis clients evaluate before they select a brand are 1) is your mark similar to or the same as an existing mark, and 2) Are you intentionally “riffing” off an existing brand? Remember that parody is not a defense to trademark infringement that will typically fly in a commercial setting. When you choose a mark as a “parody” of an existing brand, chances are you’re actually infringing a registered trademark, and possibly diluting a famous mark. And the fact that you knew of the senior trademark would absolutely play against you in litigation, as your infringement would be deemed willful.

Of course, these two factors are only the beginning of the analysis. There are instances where similar, or even the same brand names can coexist if the goods those brands are used on are completely different and marketed through separate channels to disparate groups of consumers. The analysis for likelihood of confusion can be quite complex.

Before adopting a new brand name, we recommend consulting with an experienced trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations. This recent flood of cannabis trademark litigation is only an indication of what’s to come as the cannabis industry continues to grow.

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 trademarksThe Gorilla Glue Company and GG Strains LLC, a Nevada-based cannabis company, entered a recent settlement agreement in the trademark infringement case brought by Gorilla Glue back in March. This case provided a perfect illustration of what NOT to do when developing your cannabis brand, and it now illustrates the possible consequences of infringing the trademarks of a well-established company.

In its complaint, Gorilla Glue, the manufacturer of a variety of adhesives sold under the “Gorilla” brand and distinctive logo, alleged trademark infringement, dilution, unfair competition, and cybersquatting. The allegation was that by marketing their strains under “confusingly similar” names, GG Strains was trading off the goodwill and reputation established by Gorilla Glue over the course of 23 years.

The trademark infringement in this case appears to have been flagrant – GG Strains utilized a logo for its “Gorilla Glue #4” strain that incorporated a gorilla, and certainly conjured an association in the minds of consumers with the famous adhesive brand. But though this case involved a pretty flagrant example of trademark infringement – after all, the infringing word mark was exactly the same as the registered Gorilla Glue mark – the standard for infringement is actually significantly lower. Not only can you not use a mark that is the same as a registered trademark, you cannot use a mark that is confusingly similar to a registered trademark.

We’ve written before about the standard for assessing likelihood of confusion, but it warrants repeating. The Ninth Circuit (which sets the law on this for Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) in AMF Inc. v. Sleekcraft Boats, developed an eight-factor test for determining whether one mark is confusingly similar to another. Here are those eight factors:

  1. Strength of the mark;
  2. Proximity of the goods;
  3. Similarity of the marks;
  4. Evidence of actual confusion;
  5. Marketing channels used;
  6. Type of goods and the degree of care likely to be exercised by the purchaser;
  7. Defendant’s intent in selecting the mark; and
  8. Likelihood of expansion of the product lines.

Some of these factors are clear-cut, and some are highly subjective. The Ninth Circuit has repeatedly reaffirmed that this is a flexible test, but it is useful to consider these factors when choosing a name for your brand that may be similar to another registered mark. For example, if the other, similar mark is a well-known brand, or a household name, your risk of infringement goes up. If the goods you are selling are similar to the goods provided by the other brand, your risk goes up. Likewise, if the marks are very similar, if similar marketing channels are used, or if either company intends to expand into the market of the other, your risk of infringement goes up. You’ll notice that the court also considers the intent of the defendant. This means that if you knew from the outset that your mark was similar to a registered mark, the court is less likely to look favorably on your case.

In the Gorilla Glue case, the intent of the defendant would likely have been a factor weighing heavily in favor of the plaintiff. It would have been tough for GG Strains to make a case that they weren’t intentionally referencing and playing off of the brand of the well-known adhesive company.

And the consequences for GG Strains’ branding choices were serious. The settlement agreement gives GG Strains twelve months to cease using the word “Gorilla,” an image of a gorilla, or any of the “Gorilla” trademarks. After December 18th of this year, GG Strains can only use their current “Gorilla” marks preceded by a new name, together with the phrase “formerly known as.” Affiliated companies, dispensaries, cultivators and other partners must stop using the word “gorilla,” or any Gorilla Glue trademarks or imagery, and licensees of the strain have ninety days from September 19, 2017 to cease use of the gorilla word, images or trademarks.

The founder of GG Strains estimates that the dispute and rebranding costs have totaled around $250,000. And the costs would have been astronomically higher had the case proceeded to litigation. This should serve as a lesson to cannabis business owners that your brands will be treated no differently than those in any other industry. Big brand owners are taking note of what cannabis businesses are doing, and they are not hesitating to enforce their trademark rights against cannabis brands in court.

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 trademark law
Will the wraps come off cannabis trademarks?

Last week, in an 8-0 opinion in the Matal v. Tam case, the United States Supreme Court ruled that the disparagement clause of the Lanham Act violates the First Amendment’s free speech clause. For those unfamiliar with the case, in 2011, Simon Tam attempted to register The Slants (the name of his band), as a federal trademark. But the USPTO examining attorney rejected the application, on grounds that the name was an offensive reference to Asians.

Section 2(a) of the Trademark Act, 15 U.S.C. §1052(a), bars any trademark registration of immoral, deceptive or scandalous matter, and states that no trademark may “disparage … or bring … into contempt or disrepute” any “persons, living or dead.” Some characteristics of a mark that can result in rejection include references to sex, offense to religion, race or to honor, and references to illegality. Interpretation of this prohibition is (and you probably would guess) both subjective and fluid, creating a good deal of uncertainty as to what actually constitutes disparagement.

According to Tam, “he and his bandmates wanted to reclaim the term as a badge of pride.” The Court of Appeals, and now the Supreme Court, found that the disparagement clause “offends a bedrock First Amendment principle: speech may not be banned on the ground that it expresses ideas that offend.” In Justice Kennedy’s concurring opinion, he stated that a “law that can be directed against speech found offensive to some portion of the public can be turned against minority and dissenting views to the detriment of all … The First Amendment does not entrust that power to the government’s benevolence. Instead, our reliance must be on the substantial safeguards of free and open discussion in a democratic society.” We couldn’t agree more.

So how does this opinion affect cannabis trademark applications? Substantively, not a lot. Obtaining a federal trademark registration for use on cannabis-related goods presents a host of challenges, and none of that has changed. You still must make legal use of your mark in commerce to obtain a federal trademark registration.

But we were seeing the rejection, at least initially, of some trademark applications for goods and services that were ancillary to the cannabis industry – goods and services that CAN qualify for registration – based on references in the mark to immoral or scandalous matter. Ultimately, subjective denial of a trademark application based on the nature of speech it contains should not generally be within the power of the PTO. It stands to reason that if disparaging marks cannot be denied registration and are protected by the First Amendment, the same principal ought to apply to “immoral” or “scandalous” marks. Thus, the PTO may not be able to reject applications that make reference to things like being “high,” which could be considered “immoral” or “scandalous,” because those references are protected by the First Amendment.

Cannabis licensing dealsAs we wrote a few days ago, the Washington State Legislature recently passed SB 5131, which updates Washington’s cannabis laws and includes a provision that explicitly addresses licensing agreements. The bill has yet to be signed by Washington Governor Jay Inslee, but we are nevertheless exploring what the implications of these new regulations will be for our clients with existing and pending intellectual property licensing deals.

Section 16 of the bill reads as follows:

Sec. 16.   A new section is added to chapter 69.50 RCW to read as follows:

  • A licensed marijuana business may enter into a licensing agreement, or consulting contract, with any individual, partnership, employee cooperative, association, nonprofit corporation, or corporation, for:
    • Any goods or services that are registered as a trademark under federal law or under chapter 19.77 RCW;
    • Any unregistered trademark, trade name, or trade dress; or
    • Any trade secret, technology, or proprietary information used to manufacture a cannabis product or used to provide a service related to a marijuana business,
  • All agreements or contracts entered into by a licensed marijuana business, as authorized under this section, must be disclosed to the state liquor and cannabis board.

On its face, this provision does little to change things for those with existing licensing deals, except that those deals will now need to be disclosed to the licensee’s enforcement officer. But the provision does validate the position that these types of licensing agreements were permissible under the rules all along, which provides some level of security to the parties as to the legitimacy of the contracts.

The big question that remains unanswered is whether the State’s acknowledgement of the permissibility of “licensing agreement[s]” is also an acknowledgement of the permissibility of standard trademark licensing practices, including royalties. Currently, it is impermissible under the rules for a licensor to receive a royalty based on sales or profits from a licensee, where that licensor has not been vetted by the Liquor and Cannabis Board (LCB) as a true party of interest. Undisclosed true party of interest relationships are grounds for license cancellation by the LCB, so it’s important to structure these deals so they do not implicate Washington’s true party of interest rules when dealing with an out-of-state licensor, or a licensor that simply would not meet the state’s requirements.

Even if state cannabis law reform in Washington makes the state law compliance piece of any trademark licensing deal more straightforward, these deals are still by no means as cut and dry as your typically IP licensing deal. Ownership of IP in the cannabis industry remains a tricky issue, in large part because the USPTO will not issue federal trademark registrations for cannabis-related marks. Cannabis companies routinely come to us with proposed licensing deals where basic due diligence quickly reveals the licensor simply does not own what it purports to own. As a refresher, if you are looking to get a license for another company’s IP, here are the most basic questions you should be able to answer about that other company and its IP:

  • Does the licensor own any federal trademark registrations?
  • If so, what goods and/or services do those trademark registrations cover?
  • Was the description of goods and/or services filed with the USPTO accurate and true? Were there possible misrepresentations?
  • Are the trademark registrations based on actual use, or upon intent-to-use?
  • What representations and warranties is the licensor making (or, often more importantly, not making) regarding the marks?
  • If the licensor doesn’t own any federal trademark registrations, is it licensing someone else’s trademarks?
  • Does the licensor have a master licensing agreement? Do the terms of any proposed sub-licensing agreement mirror that master licensing agreement?
  • What quality control standards will you be held to by the trademark owner? Could these standards amount to impermissible control over a licensee under Washington’s cannabis rules?
  • Has the trademark owner warranted to keep all USPTO filings up-to-date?
  • Does the licensor own any state trademark registrations?
  • If so, has the licensor made lawful use of its mark in commerce in the state of registration?
  • Does the licensor have any common law trademark rights? Can the licensor even legally acquire common law trademark rights in your jurisdiction?

This is a substantial list, but it only scratches the surface of the issues you and your cannabis IP counsel must consider before you enter into any IP licensing deal. Parties are often quick to skip straight to negotiating commercial terms for a deal, without ever assessing whether the rights they are licensing actually exist. Just as with any other type of property, like a house or a car, a licensor of intellectual property must actually own the rights to that property to be able to confer those rights to another party. Seems basic, but it’s truly shocking to see the deals we’ve seen put together by attorneys who either do not know cannabis or, more often than not, do not know the intricacies (or even the basics) of intellectual property law.

Though cannabis IP licensing deals remain complicated, it’s encouraging to see the Washington State Legislature acknowledge and condone their existence. We’ll be following this bill closely to see whether its passage results in any changes to the current difficulties surrounding a royalties-based payment structure.

So stay tuned.

California cannabis trademarkOne of the biggest hurdles for California cannabis brand owners has been the inability to secure California state trademark registrations for their marks. This has been a point of confusion for many clients who have successfully registered their trademarks in states like Washington, Oregon and Colorado, and hoped to do the same in California.

Until recently, the California state government has been steadfast in refusing to register marks used on cannabis, despite cannabis having been legal in California since 1996. This policy was rooted in Sections 14270-14272 of the Model State Trademark Law of the California Business and Professions Code (CBPC), which are simply titled “Miscellaneous.” Section 14272 states the following:

The intent of this chapter is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946 (15 U.S.C. Sec. 1051 et seq.), as amended. To that end, the construction given the federal act should be examined as non-binding authority for interpreting and construing this chapter.

Recall that there are three ways in which a brand owner can establish trademark rights:

  1. By using the mark in connection with their goods or services (legally) in commerce;
  2. By registering the mark with the United States Patent and Trademark Office (USPTO); and
  3. By registering the mark with an appropriate state trademark registry.

California cannabis companies have, to date, needed to rely on federal trademarks registered with the USPTO (if they could get them for ancillary goods or services), and common law rights that may not even exist in California, given Section 14272 of the CBPC.

But Assembly Bill 64 will change all this. Recognizing the inconsistency between current state trademark law provisions and the new cannabis regulations, AB 64 states the following:

This bill, for purposes of marks for which a certificate of registration is issued on or after January 1, 2018, would, notwithstanding those provisions, authorize the use of specified classifications for marks related to medical cannabis and nonmedical cannabis goods and services that are lawfully in commerce under state law in the State of California.

This is great news for California cannabis companies, but there are a few things to keep in mind:

  1. State trademarks will not be available until January 1, 2018, and then only for cannabis companies that operate in compliance with California state law. Unlicensed cannabis businesses will not be eligible for California state trademark protection;
  2. The same difficulties surrounding cross-state IP licensing deals will still exist in California (see Cannabis IP Licensing: It’s Complicated); and
  3. Federal trademarks are still unavailable for goods and services that violate federal law, so developing a brand protection strategy that involves federal trademark registrations for ancillary goods, and state trademarks for cannabis goods, will still be key. See Cannabis Trademarks: Back to the Basics

Though the protection afforded by a state trademark is geographically limited to the state of registration, state trademarks do provide some level of protection greater than common law rights. And AB 64 will give California cannabis business owners much greater flexibility in developing a brand protection strategy that encompasses their cannabis products.