Intellectual Property/Branding

marijuana intellectual property licensing
Licensing agreements can get complicated. Start with who owns what.

We’ve written extensively about the potential pitfalls of intellectual property (“IP”) licensing deals, which are prolific within the cannabis industry. (For a few select articles, try here, here and here). Recently, news broke of another licensing-related lawsuit, this time involving Tommy Chong. According to the lawsuit, Chong and his son allegedly conspired to steal profits from Evergreen Licensing LLC. The complaint seeks damages for breach of contract, fraud and unjust enrichment.

The complaint alleges that after three years and $1 million spent on the project, Chong and his son conspired to “take it all away, even hacking into Evergreen’s Gmail account in order to misappropriate social media sites that plaintiffs created for the project.” The plaintiffs further allege that they were cut “entirely out of the picture, the project and the revenue and profits the project was going to generate and is generating.” It all sounds pretty unfair.

Unfortunately, these types of allegations come as no surprise given some of the proposed deals that have come across our desks. IP licensing is often seen as a quick and easy way to enter the marijuana industry, without having to clear the hurdles of state and local licensing and regulatory compliance. But unfortunately, this simply is not the case. These deals are complicated and fraught with unique cannabis-related issues beyond those posed by state and local regulations.

In addition to regulatory compliance, those contemplating a cannabis-related IP licensing deal need to understand the fundamentals of intellectual property, and this often begins with determining who actually owns what. In the cannabis industry in particular, information, strain names, and industry terminology have been shared freely since long before state-level legalization, and this compounds the difficulty faced by cannabis business owners in protecting their IP.

Ownership of IP in the cannabis industry is fraught with issues, as we’ve discussed before, in large part because the USPTO will not issue federal trademark registrations for cannabis-related marks. Far too often, 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.

If you’re looking to license IP from another company, here are the most basic questions you should be able to answer about that 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 list is only the beginning of the questions that will need to be asked and answered, but failing to address these issues at the outset of a deal is a recipe for litigation, as we see in the case of Tommy Chong. As a business owner considering entering one of these deals, don’t be distracted by big names or big promises: If the IP doesn’t exist and if ownership cannot be demonstrated, there is no real value to be had. Although IP licensing in the cannabis industry is complex, there are creative and valuable solutions to be had, but those require a solid understanding of both IP law and state and local cannabis laws to execute.

marijuana trademark canada
Some U.S. companies are looking north for trademark protection

With U.S. federal trademarks being impossible to obtain for cannabis goods and services that violate the Controlled Substances Act, my trademark clients are beginning to ask questions about their options for international trademark protection. Canada, having legalized cannabis and being our closest neighbor, is usually one of the first countries my clients are interested in.

According to a recent piece written by a group of Canadian attorneys at Torys LLP, the number of trademark filings covering cannabis-related goods and services in Canada has increased dramatically since talk of cannabis legalization began.

Canada has made some big changes to its Trademarks Act that will likely be implemented early next year, and these changes will make it much easier to register trademarks. In particular, Canada will remove the requirement that a trademark be “used” prior to registration issuing. In the U.S., an applicant can file a trademark application prior to making use of their mark in commerce if they have a bona fide intent to do so (this is called an “intent to use” application), but in order for a registration to actually issue, the applicant will need to submit a “Statement of Use” to the USPTO within six months from the date the Trademark Office gives a “Notice of Allowance.” One of the policy reasons for this “use” requirement in the U.S. is to prevent trademark “squatting,” where individuals register marks without any intent to use them in order to either prevent others from making use of the marks, or to extract payment from those wishing to do so.

It is indisputable that by removing the “use” requirement for trademark registration, Canada will be opening the doors to “trademark trolls” and “squatters.” According to the Torys attorneys, there are nearly 2,000 trademarks listed on the Canadian trademarks register with goods or services containing the words “cannabis” or “marijuana.” More than half of those applications were filed since January 2017 (apparently, as of five years ago, fewer than 100 such applications had been filed, making for a 1,900 percent increase in cannabis-related Canadian trademark applications). This rush to file for trademark protection makes sense, where companies will be forced to either register their marks, or risk losing them to third parties or squatters.

But given how relatively straightforward it is to obtain a trademark for cannabis goods or services in Canada, there are many restrictions placed on how those cannabis trademarks can be used via the proposed cannabis regulatory framework. For example, cannabis trademarks may not be used to promote cannabis goods:

  • In a manner that appeals to children;
  • By means of a testimonial or endorsement;
  • By depicting a person, character or animal, whether real or fictional;
  • By presenting the product or brand elements in a manner that evokes a positive or negative emotion about or image of, a way of life such as one that includes glamour, recreation, excitement, vitality, risk, or daring;
  • By using information that is false, misleading or deceptive, or that is likely to create an erroneous impression about the product’s characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks;
  • By using or displaying a brand element or names of persons authorized to produce, sell or distribute cannabis in connection with the sponsorship of a person, entity, event, activity or facility, or on a facility used for sports, or a cultural event or activity; and
  • By communicating information about price and distribution (except at point of sale).

With the exception of the fourth point, which could be construed as somewhat vague and certainly subjective, many of these restrictions on advertising and labeling are contained in the various state cannabis regulatory regimes here in the U.S., so these limitations should come as no surprise to cannabis business owners.

For cannabis business owners in the U.S., it may make strategic sense to consult with a trademark attorney with experience filing cannabis-related applications to consider filing for trademark protection in Canada. Successful brands will be those that think globally, not nationally.

On Friday, I had the privilege of speaking on a panel at American University Washington College of Law’s Intellectual Property Symposium in Washington D.C., which addressed the obstacles of obtaining and enforcing IP rights in the cannabis industry. Many of the questions asked were ones I’ve been working through for the last several years, so I thought it would be helpful to address them in this post, and to revisit some of the basic issues my cannabis clients face in protecting their brand assets.

First, here are a number of posts I’ve written on cannabis IP and trademarks that cover many of the issues we discussed:

The most pressing topic, of course, was how we should advise our clients to protect their brand assets, given the unique legal status of cannabis. As far as brand protection goes, federal trademarks are the most effective device for ensuring that consumers are able to identify your goods and services, and for ensuring that third parties are unable to copy your mark. 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.

On one hand, owners of successful brands want to rest assured that other parties will not be able to exploit their brand without the brand-owner’s permission. But on the other hand, trademarks are extremely important from a consumer protection standpoint. From a public policy perspective, we want consumers to know where the goods and services they purchase are coming from, and to make informed purchasing decisions based on factors like quality and safety. The primary way for consumers to distinguish the goods of one company from the goods of another is via branding.

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 (which establishes common law trademark rights);
  2. By registering the mark with the United States Patent and Trademark Office (USPTO) (which establishes more robust, statutory rights); and
  3. By registering the mark with an appropriate state trademark registry.

Registering a trademark with the USPTO is the best way to protect one’s mark, but, as we’ve discussed before, because cannabis is still illegal under federal law, and because one requirement for registration of a federal trademark is that the applicant has made “legal use” of the mark in commerce, the USPTO has continually refused to register marks for use on cannabis and any other goods and services that violate the Controlled Substances Act (CSA). Under the CSA, it is unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA.” These attempted registrations will almost always fail.

So how do cannabis businesses go about protecting their brands when federal trademark protection is unavailable to marks used on federally illegal goods and services? One way is to obtain registration for ancillary goods or services that do not violate the CSA. For example, if you manufacture a cannabis-infused beverage AND you produce and sell a non-infused version of that beverage, it may be possible to secure a federal trademark registration that will cover your non-infused beverages. The strategy here is to then assert a “likelihood of confusion” argument against any would-be infringers in order to prevent them from using your mark.

Another strategy we advise our clients to use is the state trademark registration process. Though the protection afforded by a state trademark is geographically limited to the state of the registration, at best, state trademarks tend to provide more extensive geographic protection and legal remedies than common law rights. Common law rights can be limited to the geographic area in which you are using the mark, meaning that if you only do business in San Francisco, your common law trademark rights could only protect you within the city of San Francisco. And if you want to avail yourself of the statutory remedies available to trademark owners in infringement cases, you will need to register your mark.

Regardless of whether you file for federal or state trademark protection, or whether you opt to develop a brand without ever registering anything, it is critical to ensure that your brand does not infringe on the rights of any third party. A mark does not need to be exactly the same as another mark in order to infringe that mark: the standard is “confusing similarity,” which is comprised of multiple factors and is highly subjective. This is why, prior to investing in brand development, consulting a trademark attorney and obtaining a comprehensive search report on your proposed mark is key. A thorough search is necessary to establish that your brand or logo will not infringe any other trademark, whether registered or not.

As we’ve stated before, the federal illegality of cannabis makes brand protection and trademark law particularly complex in this industry. Navigating state and federal trademark laws to protect your mark is possible, but requires some ingenuity.

As we’ve discussed before on this blog, cannabis can be and is being patented. It is important to remember that patents are a balance between competing social values. In classical legal theory, patents exist to encourage innovation by offering innovators a limited monopoly in return for making inventions, and eventually releasing them to the public. Although the common law disfavors restraints on trade such as patents, the prevailing theory is that granting a partial monopoly is justified by the social benefit of innovation. This is known as the contract model of patents. Whether this model really produces net social utility in particular cases, or ever, is hotly debated.

What isn’t debated is that the contract model fails if what is patented is not new. One of the biggest challenges of our patent system is determining what is “new enough” to reward with a patent. In general, the patent system examines novelty by comparing a claimed invention to existing products (known as the “prior art”) that are in the same or related fields. (In some patents, an invention must also be “non-obvious” in light of prior art. I don’t address obviousness here.) The practical problem is searching the historical haystack for the needle of relevant prior art. Searching the text of patents is relatively easy. But most of the world is not patented, and is more difficult to search; e.g., plants and other living things are not text-searchable. So how do we keep living prior art, such as cannabis strains, available to the public and not covered by the patent monopoly?

This question is being addressed by an Oregon non-profit, the Open Cannabis Project (“OCP”) (full disclosure: I am a legal advisor to the OCP). According to the OCP:

Cannabis is in danger of going the way the rest of agriculture has gone: toward monoculture, centralization, and restrictive patenting…The growing wave of legalization – and the intellectual property competition that comes with it – may have the unintended consequence of narrowing and restricting [cannabis] diversity….Open Cannabis Project (OCP) was established by industry leaders to resist these forces and to protect the genetic diversity of the Cannabis plant as well as the economic diversity of the cannabis industry….

To keep existing cannabis strains freely available to the public, the OCP is building an open-source repository of genetic and chemotypic data. This repository will serve as a source of prior art, useful to the U.S. Patent and Trademark Office (“Patent Office”) and to the cannabis industry. Several labs have already pledged to contribute existing data to the repository, which is now being stored at the National Center for Biotechnology Information. The OCP’s aim is to have a comprehensive set of genetic data for all cannabis varieties that are either naturally occurring or which have been previously available to the public. Either one of these conditions renders such varieties unpatentable.

The OCP holds great promise in its goal of keeping existing cannabis strains from coming under the control of one commercial entity or another. Some questions remain, however. For example, there is sometimes a mismatch between what the Patent Office considers when it reviews plant novelty, and what is available in genetic data. Hopefully the OCP and other cannabis industry players will be able to work with the Patent Office and perhaps Congress to address this and other concerns. Given the availability of cannabis patents and the size of the industry, there is a lot at stake.

oregon cannabis processor
Licensees and employees only: them’s the rules!

Our Oregon marijuana processor clients often approach us with requests to draft agreements that will allow third-parties to process cannabis in the client’s licensed premises. Typically, the processor is not operating at capacity and would like to supplement income by charging fees to keep the premises open around the clock. Previously, we have explained that this arrangement only really works if the third-party is also a licensed OLCC processor, pursuant to Oregon’s new alternating proprietor rules (OAR 845-025-3255). However, we are most often approached with proposals to have non-licensee third-parties enter the kitchen and physically create cannabis products that will be owned and sold by the licensee.

Here is a more concrete example: Kelly’s Kitchen is an Oregon Liquor Control Commission (OLCC) licensed processor. Kelly meets Cindy, who has developed a recipe, labels, and packaging. Cindy doesn’t want to go through the OLCC application process, she just wants to make her Bud Brownies. Kelly invites Cindy to personally make her brownies on Kelly’s property, and Kelly agrees pay Cindy for each unit sold. The prevalence of these arrangements suggests that the industry has been treating this as a grey area. However, we recently reached out to the OLCC and received confirmation that this is black and white: The OLCC will view Cindy as illegally processing cannabis without a license, even if Kelly always retains ownership of the cannabis and resulting product. This arrangement can also put Kelly’s license at risk. No arrangement that allows non-licensees to personally process cannabis within a licensed premises is allowed under the rules.

The OLCC’s view should not come as a surprise when you consider the significant restrictions in the new alternating proprietor rule that allows multiple OLCC licensed processors to share kitchen space:

  • The kitchen must have a pre-approved schedule posted on its front door showing when each processor will be using the kitchen.
  • The kitchen must have a separate secure area for each processor to store its cannabis products.
  • Any concentrates produced under an alternating proprietor arrangement can only be used within that processor’s edibles or topicals.

In effect, Cindy and Kelly are trying to bypass these restrictions, and the processor licensing regime as a whole.

The only viable alternative to alternating licensed proprietors appears to be a standard intellectual property licensing agreement, whereby Cindy would license her recipe, branding, and packaging to Kelly as co-packer. Kelly or her employees then process the brownies and sell them retailers or wholesalers without Cindy’s involvement. Cindy will likely expect to be paid based on the number of brownies that Kelly manages to sell. However, anyone considering this arrangement needs to carefully look at the OLCC’s financial interest disclosure requirements.

The definition of financial interest is fairly broad and includes anyone “having an interest in the [licensed] business such that the performance of the business causes, or is capable of causing, [an individual or entity] to benefit or suffer financially.” The OLCC will view Cindy as a financial interest holder because her compensation depends on Kelly’s success in moving the product. This isn’t the end of the world, but it does mean that Kelly must submit a Change in Financial Interest form and receive approval from the OLCC before Kelly begins making Cindy’s brownies. All this means is that Cindy will likely need to be fingerprinted and pass a background check.

We expect that we will continue to be approached by clients that want to invite non-licensees into their licensed premises to make products, but now we can confidently say that this common industry practice violates OLCC rules. Be warned!

Previous posts have discussed cannabis patents, here, and here, and here. Today I explain the basics of how to read a patent. Why would you want to do such a thing? If you are in the cannabis business, you may own a patent, or be threatened of infringing one. The tips below will give you a good start on understanding what a patent means.

Today I focus on utility patents, which are about 90% of all patents. (The other major category is design patents.) Utility patents can cover such things as cannabis plants, or methods of making cannabis plants. Utility patents have four basic parts: introductory material, drawings, the specification, and the claims. To read and understand a patent, you should be be familiar with each of them.patent marijuana cannabisUnsurprisingly, the introductory material is at the beginning of the patent (shown above). It starts out with the patent number, the date the patent was issued, the inventor(s), and the assignee — if there is one. It also provides the filing date of the patent, which is usually several years before the issue date. The next important part is the “references cited,” a list of prior art that the patent examiner looked at. There is also a short “abstract,” a sort of summary of the invention, often followed one or two pictures of the invention. While the abstract and the opening pictures can give a good idea of what is to come, they do not define the invention. More on that later.

Next are a series of stylized line drawings or charts. While making patent figures is an art, the figures are not intended to be artistic. Rather, they are there to help the reader understand what the invention is, and perhaps how it is used. Like the abstract, the figures do not define the invention. In fact, some of the figures may not refer to the invention at all.

Following the figures is one or more pages of text in 8 point type, set out in two columns separated by a narrow column of numbers. This is generally referred to as the “specification,” or “spec” (although technically the specification also includes the figures and the claims). The specification usually gives the background of the invention, a summary of the invention, often a brief description of the drawings, and then a “detailed description of the invention.” This sets out the nitty gritty technical details of the patent, usually making reference to the various drawings by number. Although the specification gives this detailed description, once again, it does not define the invention.

Finally, tucked away at the very back of the patent, shyly hiding behind the specification, are one or more patent claims. The claims are numbered, and always start with “What is claimed” or “I claim” or “we claim” or similar language. What, you may ask, do these puny claims do? Well, they define what has been invented, that is, what is covered by the patent. They are the equivalent of the deed to your house, which describes, in somewhat technical terms, exactly where your property begins and ends.

So how do you make sense of all of this? I suggest that you start with the introductory material. Then turn to the claims. Keep in mind that in order to infringe a patent claim, whatever is accused of infringing must have every single thing listed in the claims.  If the claim is for a hybrid cannabis plant, which produces a female flower comprising CBD content of >3% and a terpene profile of alpha phellandrene, a plant that has only 2% CBD won’t infringe.

Next, look at the drawings and the specification. I usually print out an extra copy of the drawings and have them open when I read them. Once you have done that, you can go back to the claims with a better understanding. Often, claims only contain part of what is in the specification. But the claims are the key to knowing what the patent is about.

Most importantly, have fun! You could be reading the tax code.

 

cannabis marijuana intellectual property
It can be tough to decipher who owns your cannabis business IP, if you don’t write it down.

An important question for any cannabis business is: who owns the company’s intellectual property (IP)? The easy way to answer this question is to work it out before any dispute. The much, much harder way is to litigate. As noted in a famous oil filter commercial, “You can pay me a little now. Or you can pay him a lot later!”

The two most common situations where IP ownership disputes arise in a marijuana business are between the owners of a company, and between the company and its employees. Here are some tips on how to handle each situation.

IP ownership in an entity: IP is a capital asset of a cannabis company, and like all other capital assets, e.g., grow equipment, real property, office furniture, software, etc., should be owned by the cannabis company itself, as provided in the entity operating agreement. Issues can occur, however, when the entity wants to use IP that is already owned by a member/owner of the entity.

In particular, many operating agreements provide that a member contributes her IP as initial capital. There is nothing wrong with this, in theory. Intellectual property, like real property or other assets, can be contributed as capital provided that the operating agreement properly values and accounts for the asset. But problems can occur when the operating agreement does not legally transfer title in the IP to the entity. In such a situation, the “contribution” may be more like a license, which can be revoked. If the contributed IP is the primary brand name of the company, this could give the contributing shareholder undue leverage if she wants to withdraw from the entity after the company has built equity in the brand name. A significant number of operating agreements do not properly transfer title to the trademarks, copyrights, or patents that are being contributed. Without the appropriate transfer, this is a time bomb waiting to explode, in a courtroom near you.

IP ownership of employee creations: The conventional wisdom is that everything that is created by a company’s workers automatically belongs to the company as “work for hire.” While there is a federal copyright statute that refers to works for hire, the rules are much narrower than conventional wisdom suggests. This often causes conflicts between employers and employees about patents and copyrights, which in turn lead to litigation.

There is an easy way to avoid the work-for-hire minefield, called an employee IP agreement (“EIA”). An EIA is a written agreement that defines which creations are the employee’s, and which are the employer’s. For example, where a new employee has already created IP before her employment, the EIA could provide that the employee retains title to all disclosed preexisting IP, but is required to assign any future IP created in the scope of her work to the employer. EIAs also often address creations done outside of the workplace or outside of the scope of employment, and may provide for invention bonuses or other incentives. The key is that the EIA allows the parties to define their ownership of worker creations, without having to rely on the limited default rules that exist in federal and some state law.

***

IP ownership agreements: don’t leave the dispensary without one! For parts 1 – 3 of this series, check out the following:

california cannabis trademark
In California, trademark use comes before registration.

It was big news for California cannabis business owners when the California Secretary of State’s office announced that it would be accepting applications for cannabis-related trademarks under limited circumstances. Until January 1st, one of the biggest hurdles for California cannabis brand owners had been the inability to secure California state trademark registrations for their marks. But we are still receiving a lot of questions from clients regarding whether they are actually eligible for those registrations, particularly when they have not yet received their temporary or full license from the state, or even when they are not yet operating.

As we’ve discussed before, one of the key requirements for obtaining a California state trademark registration (or a federal trademark registration, for that matter) is that you must be making lawful use of the mark in commerce at the time of your application. For any state trademark application, this means you must be making lawful use of your mark in commerce within that state. This requirement has created a good deal of difficulty for those seeking to enter into cross-state brand licensing deals, but it’s also creating some confusion here in California, where it isn’t always clear what “legal use” of a mark entails.

The California Secretary of State’s office has indicated that it will accept trademark applications for goods and/or services that fit within an existing classification code from the USPTO’s Identification of Goods and Services Manual. While it will be easy to register for things that fit squarely within the USPTO specifications, like retail services, registering for cannabis products themselves will prove less clear cut. So every application must specify goods and/or services that the applicant is actually selling, and the sale of those goods and/or services must be legal under state law. Note that mere token sales of goods or services are insufficient to support trademark registration.

To sort through the requirements for a successful state trademark application, it’s useful to go back to the basics of legal trademark use under federal law.

One of the key considerations in any trademark application is that it doesn’t matter how clever the wording of your specification of goods and services is, if you aren’t actually selling goods or services that comply with the relevant law. For example, under federal law, calling your goods “dried herbs,” “dried plant matter,” or “agricultural goods” will not fool the examining attorney if what you are actually selling is cannabis.

How this will play out at the state level, however, is less clear, where the sale of cannabis is now legal for those with a state license (we are intentionally taking a conservative position on this, as a trademark registration that is open to challenge and cancellation down the line could end up doing an applicant more harm than good). As under federal trademark law, you must actually be selling the goods you specify in your application, and the goods you are selling must comport with state law. The Secretary of State’s office has taken a rather ambiguous position here, but we think it’s the best they could do given the lack of legislation amending California’s trademark law. Until the state establishes a specific class under which businesses can register their marks for cannabis products, we expect to see trademark applications with intentionally vague specifications of goods and services, which won’t benefit anyone, including trademark owners.

And remember that this determination does nothing to increase your odds of obtaining a federal trademark, even though the state has deemed your use “lawful.” An applicant must have a bona fide intent to use their marks lawfully (under federal law) in commerce under Sections 1 and 45 of the Trademark Act, 15 U.S.C. §§ 1051, 1127.

Note that even an application filed on an intent-to-use basis could be rejected if the record indicates that the identified goods or services are unlawful, because actual lawful use in commerce is not possible. Many applicants have tried and failed to make an argument that because they sold goods only in states that allow for the legal sale of cannabis, their current and intended use therefore constitutes lawful use in commerce under the Trademark Act. The USPTO has repeatedly rejected this argument, citing a decision that “the fact that the provision of a product or service may be lawful within a state is irrelevant to the question of federal registration when it is unlawful under federal law.” In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016). In other words, the federal interdiction against cannabis will control over state law cannabis legalization.

The takeaway here is that lawful use in commerce will be key to obtaining a California State trademark registration that will hold up in court, and provide you with adequate brand protection. It’s better to hold off on filing your trademark application until you are certain you meet all the legal requirements under trademark law, than to rush and file an application that could be subject to cancellation. We cannot stress enough the importance of engaging with an experienced trademark attorney to ensure that your application is viable before you file.

California pot trademarks: it’s a race.

Things are about to get a little easier for marijuana companies looking to protect their brands in California, where obtaining a state trademark for cannabis goods and services has not been possible, to date. Beginning January 1, 2018, however, all of that changes. Customers may register cannabis-related trademarks or service marks with the California Secretary of State’s Office, so long as the following requirements are met:

  1. The mark is lawfully in use in commerce within California; and
  2. The specification matches the classification of goods and services adopted by the United States Patent and Trademark Office.

The Secretary of State’s Office has reiterated that they will only accept applications insofar as the goods and/or services in question fit within an existing classification code from the USPTO’s Identification of Goods and Services Manual. Therefore, it will be easy to register for things that fit squarely within the USPTO specifications, like retail services. Cannabis goods could be more problematic, although we have already begun to develop strategies to protect these as well.

The other key to obtaining a California state trademark registration is that you must be making lawful use of the mark in California state commerce at the time of your application. This means that you must be licensed by the state to provide the goods and services for which you are seeking protection, and you must have made your first sale of those goods or services as well. Unlike the USPTO and some states that allow for trademark “reservations,” California does not have an intent-to-use trademark application, and so you must make use of your mark prior to obtaining protection. In that sense, it’s a race.

We have received a lot of inquiries from clients interested in applying for trademarks on January 1st, but few will actually be eligible on day one. On this point, it is important to note that if you file a trademark application before you’ve made use of your mark, that application could be subject to cancellation down the line. It would also be unhelpful in the event you end up in trademark litigation. The flip side here is that “squatters” who plan to register illegitimate marks on January 1st will fail, or will be open to cancellation without any bona fide use.

When combined with federal trademark registrations for ancillary goods and services, this development in California state trademark policy will be key in bolstering brand protection for licensed cannabis businesses. We are glad to see California finally join Oregon, Washington and other cannabis program states that allow entrepreneurs to protect their valuable intellectual property through registered trademarks.

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.