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By J.D. Houvener
Patent Attorney and Founder

by: Spencer Keller*

ABSTRACT

The current state of cannabis and intellectual property laws and regulations leaves small and emerging cannabis businesses at a distinct disadvantage com­ pared to those in other industries. Those wishing to pursue cannabis inven­ tions and patents face an uphill battle as cannabis research and development is nearly impossible to conduct legally. The difficulty in researching  cannabis has pushed companies to move their research outside of the United States, leaving those growing businesses unable to corner their market in the cannabis industry. Complicating matters further are the overly broad patents that can­ nabis patentees are likely receiving as a result of market participants leaving innovations undocumented due to fear of being prosecuted for their involve­ ment in the industry. Although the cannabis-patenting field is cloudy, busi­ nesses can utilize alternative strategies such as state and ancillary trademarks, trade secrets, and first-mover advantages to protect their information  and grow their brands.

TABLE OF CONTENTS

 

  1. INTRODUCTION
  2. CURRENT CANNABIS AND PATENT LEGAL
    1. Relevant Cannabis Laws
    2. US. Patent Laws
    3. Cannabis Patents in the United States
    4. Are Cannabis Patents Valid?
  3. THE ADVANTAGES AND DISADVANTAGES OF SEEKING CANNABIS PATENT PROTECTION
    1. What Is Prior Art and How Does It Relate to Cannabis?
    2. Patents Require Invention Disclosure
    3. The Hurdles in Conducting Cannabis Research
    4. Should Emerging Cannabis Businesses Utilize Patent Protection?
  4. TRADEMARKS AND CANNABIS
  5. OTHER MECHANISMS FOR SMALL CANNABIS BUSINESSES TO PROTECT THEIR INTELLECTUAL PROPERTY
    1. Trade Secrets and Their Place in Cannabis
    2. Trade Secrets vs. Patents
    3. First-Mover Advantage
  6. CONCLUSION

 

I. INTRODUCTION

Humans have utilized cannabis in its various forms for thousands of years. 1 Whether it be the strong and durable fibers of hemp, the psychoactive effects of tetrahydrocannabinol (“THC”), or the pres­ ently popular compound Cannabidiol (“CBD”), humans have an ex­ tended history with cannabis. 2 Throughout the history of the United States, cannabis’s status-both legally and socially-has undergone intense fluctuations. 3 From North America’s colonization until the turn of the 20th century, cannabis was widely grown for use in clothing and other cloth materials. 4 In the late nineteenth century, Americans started using marijuana for both recreational and medicinal products.5 As the Great Depression hit the United States, public sentiment to­ ward marijuana became increasingly negative, and the federal govern­ ment eventually imposed strict penalties for marijuana use and possession.6 In the 1960s and early 1970s, marijuana would slowly be decriminalized, but this trend would flip in the other direction with President George H. W. Bush declaring a “War on Drugs” in 1989.7 At this point, cannabis products were illegal under federal law and under all fifty states’ laws.8 In 1996, California would pass the “Com­ passionate Use Act,” allowing doctors to recommend medicinal mari­ juana.9 The California medicinal-use law empowered other states to take a federalist approach to marijuana law, leading to the current cannabis renaissance, which is unlikely to end anytime soon.

As of February 2020, eleven states allow adult recreational  mari­ juana use, and an additional twenty-two states allow for some form of medicinal use.10 Legalizing and decriminalizing cannabis has led to ex­ pansive business opportunities both directly (i.e., growing and processing fresh cannabis) and indirectly  (i.e., using cannabis in al­ ready established industries) related to cannabis.11 Albeit possessing a wide range of industrial use, cannabis  laws  and  regulations  vary greatly among the fifty states and the federal government. Cannabis is a quickly emerging industry in the United States.12 In 2019, legal can­ nabis sales in the United States totaled $13.6 billion.13 Legal sales are expected to increase by 32%  annually,  with total sales expected  to reach nearly $30 billion by 2025.14 The legal cannabis market’s as­ tounding growth has opened doors to  potential business owners in ar­ eas once occupied by black-market participants. With cannabis undergoing an economic renaissance,  those wishing to  build a canna­ bis business and  stake their intellectual  property  (“IP”)  claims  must do so strategically.

Businesses across all realms of industry  use IP protection options such as patents, trademarks, and trade secrets. However, the federal illegality of most cannabis products inhibits cannabis business owners and researchers from fully benefiting from certain IP options. 15 This Comment will describe the IP obstacles those in the cannabis industry face and how industry participants can strategically utilize the IP op­ tions available  to them. Part  II explores current cannabis and patent laws in the United States and explains the possibility that cannabis patents are invalid. Next, Part III examines the pros and cons of can­ nabis patenting and how the  United States Patent and Trademark Of­ fice (“USPTO”) continues to grant overly  broad  cannabis  patents due to the insufficient record of technological advances in what has been a black-market industry for decades. Part IV examines how cannabis businesses can dance around federal trademark regulations by using ancillary federal trademark registration, state  trademark  registration, and common law trademark rights to protect their brands.

Part V dis­ cusses other strategic options cannabis businesses can utilize such as trade secrets and the first-mover advantage. Finally, Part VI will conelude by recommending how the federal government can cure the IP hurdles that are unique to the cannabis industry.

 

II. CURRENT CANNABIS AND PATENT LEGAL SCHEMES

Cannabis and IP laws form a convoluted web of regulation that can be extremely difficult to navigate. Cannabis laws vary widely between states. Even if a state legalizes marijuana, that state and all of its mari­ juana industry participants still violate federal law.16 Further compli­ cating matters are agency rules promulgated by the USPTO. Thus, patents, trademarks, and trade secrets all have different eligibility rules and criteria that directly affect the IP options available to canna­ bis businesses.17

Patents are a valuable form of intellectual property that offer busi­ nesses exclusive property rights over their inventions while also signal­ ing to consumers and investors that their businesses are  worth financially supporting.18 Albeit valuable, the U.S. patent system is ex­ tremely complex with several nuances that directly implicate the can­ nabis industry. This Part will lay a groundwork  of  relevant  cannabis and patent laws and how they intertwine. Specifically, this Part will discuss the complex history and relationship between cannabis and patents.

 

A. Relevant Cannabis Laws

The issues regarding the intersection of cannabis and IP began with the federal illegality of most cannabis products. The Controlled Sub­ stances Act of 1970 (“CSA”) placed cannabis as a “Schedule I” sub­ stance, deeming it as having very little medicinal value and a high potential for abuse.19 The Schedule I status of cannabis created exten­ sive hurdles for those attempting to research cannabis, and outright outlawed any production, transport, sale, and use of medicinal and recreational cannabis products.20 Even though states are increasingly legalizing medicinal and adult cannabis use, the federal illegality still controls.21In 2018, Congress passed the latest rendition of the  Farm  Bill,22 which legalized cannabis products containing less than 0.3% of THC, but only if the products were derived from hemp.23 This allowed for the legal cultivation of hemp and subsequent extraction of CBD from hemp products.24 But the Farm Bill only legalized cannabis derived from hemp and not marijuana, as these are distinctly different plants.25

This means any derivative from marijuana plants remains federally illegal, regardless of whether the product’s THC content is less than the 0.3% threshold. 26 Thus, this Comment will refer to illegal cannabis as “marijuana.”

 

B. U.S. Patent Laws

The U.S. patent system arises from the Constitution, which empow­ ers Congress “[t]o promote the Progress  of  Science  and  useful  Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”27 In 1790, Con­ gress enacted the first-ever federal  patent  legislation.28  The  most recent patent legislation, the America Invents Act (“AIA “),29 enu­ merates specific criteria for obtaining a patent, which have existed and evolved over the last 230 years of jurisprudence. 30A patentee starts the patent  process  by filing a patent  application with the USPTO, where a patent examiner will scrutinize it to deter­ mine if  all of  the  legal criteria for patent  protection are met.31 There are three types of  patents available  to inventors: utility, design, and plant patents.32 Each involves different criteria and  offers  different types of protection.33A utility patent application begins with a detailed description suffi­ cient to allow a “person of skill in the art” (“POSITA”) to produce the invention  without  undue  experimentation. 34 The patent  applica­tion must also contain “claims,” which are the legally protected por­ tion of the  patent.35 The claims must describe patent-eligible subject matter that is a “new and useful process, machine, manufacture, or composition of matter,   or  any  new  and  useful  improvement thereof.”36 Certain  abstract  ideas, laws  of  nature,  and  natural  phe­nomena are not patent eligible.37 There are many patent statutory requirements, with the most relevant discussed below.Section 101 of the AIA codifies a “utility” requirement.38 Utility requires that an invention confer some sort of identifiable benefit.39 Section 102 codifies a  “novelty”  requirement.40 Novelty  means the new invention  must not be described  in whole by a single piece of “prior art.”41 Prior art includes previous patents, patent applications, printed publications, evidence of public use or sale of the invention, or literature otherwise available to the public before the claimed inven­ tion’s filing date. 42Section 103 codifies the “non-obvious” requirement, which pre­ cludes patent eligibility for inventions that would be obvious to a “person having ordinary skill in the art to which the invention per­ tains.”43 Unlike the novelty requirement, non-obviousness deals with all prior art that pertains to the claimed invention. If all components of the invention can be gathered in bits  and  pieces  from  multiple pieces of prior art, then the invention is obvious.44

A plant patent is different from a utility patent in that plant patents only protect unique, asexually  produced plant species.45 Although a plant patent may intuitively  appear  useful in the  cannabis industry, only 1 % of cannabis patents are plant patents.46

Plant patent infringe­ment claims are difficult to win, as plaintiffs must prove that alleged infringers asexually produced exactly the same plant that is protected by patent.47 Thus, alleged infringers may argue  that  they produced their plants using seeds, precluding any liability.48

 

C. Cannabis Patents in the United States

Protecting an invention through patenting is common practice for American businesses, and this is no different in the cannabis industry. The USPTO has granted cannabis-related patents since 1942 when it issued Patent No. 2,304,669-a method for the Isolation of Can­ nabidiol.49 Despite the CSA’s passage in 1970, the USPTO has not stopped granting cannabis-related patents. Ironically, the United States government owns a patent claiming CED-related therapeutic benefits for neurological disorders such as epilepsy and Parkinson’s disease.50

Historically, cannabis patenting was somewhat uncommon, but since 2012, the USPTO has issued over 400 cannabis-related patents, with hundreds of patent applications cycling through the USPTO an­ nually.51 This recent surge is likely due to multiple states deregulating cannabis.52 The range of  marijuana  patents granted is wide and far reaching. For example, there are active patents for extraction tech­ niques,53 plant breeding techniques,54 cannabis food and drinks,55 and lotions.56 Despite state reforms, marijuana use remains federally ille­ gal.57

Even though federal law is supreme over conflicting state laws,58the   USPTO continues  issuing cannabis-  and  marijuana-related  pat­

ents, which poses the question: Are cannabis-related patents valid?

 

D. Are Cannabis Patents Valid?

For cannabis business owners and researchers, patenting cannabis­ related inventions may appear to be a logical business and legal step, but marijuana’s federal illegality may render many cannabis patents invalid. Throughout patent law jurisprudence, courts have grappled with the principle that in order for an invention to be “useful” as re­ quired by section 101, the invention must be legal and “moral,” but courts have moved away from strictly applying morality and legality standards. 59

In  Lowell v. Lewis, the federal court system first discussed the  util­ ity requirement in conjunction with illegal and  “immoral”  inven­ tions.60 In the majority opinion, Justice Story stated that “[a]11 that the law requires is, that the invention should  not  be frivolous  or injurious to the well-being, good policy, or sound morals of society.” 61 This es­ tablished what was known as the moral utility doctrine. 62

Courts have dismissed Story’s  moral  standards,  instead  requiring that inventions have “a  significant  and  presently available  benefit to the  public.”63  Even so, the Supreme  Court  has not decided  whether the illegality of an invention should be considered when examining utility and overall patent validity. 64 But lower courts have, as was the case in Whistler Corp. v. Autotronics, Inc.

In a nonbinding decision, the United States District Court for the Northern District of Texas concluded that a patent for a radar detec­ tor satisfied the utility requirement even though the radar served ille­ gal purposes.65 A radar detector is an electronic device used by motorists to inform them of when a police car is nearby, thus allowing a speeding motorist advanced  notice to slow down.66  While examining if these devices were patent eligible, the Whistler court stated, “[u]nless and until [radar] detectors are banned outright, or Congress acts to withdraw patent protection for them, radar detector patentees are entitled to the protection of the patent laws.”67 Put simply, al­ though radar detectors can be used to aid in illegal activity, the detec­tors remain patent eligible because Congress has not otherwise prohibited them.

Whistler demonstrates that cannabis patentees should be careful not to claim inventions that are only related to marijuana, but should gen­ erally claim that the invention can serve marijuana-related purposes.68 This strategy provides a safe route for cannabis patentees if courts invalidate their cannabis patents to the extent they serve only illegal purposes.69

The cannabis and legal communities hoped that the federal court system would clarify the speculation and questions regarding the eligi­ bility and legality of cannabis patents as the first-ever cannabis patent infringement  lawsuit  was being litigated in 2018.70

Unfortunately, af­ ter two years of litigation, the plaintiff, UCANN, filed for federal bankruptcy, pausing the litigation and ensuring continued uncertainty surrounding cannabis patents.71

 

III. THE ADVANTAGES AND DISADVANTAGES OF SEEKING CANNABIS PATENT PROTECTION

Patent protection can benefit an emerging cannabis business as pat­ ent rights grant the owner a monopoly over a given piece of technol­ ogy for twenty years. 72 Pursuing patent rights may also signal to investors that a business is worth investing in. But businesses must weigh the pros and cons of filing for and maintaining a patent, as pat­ ent filing can be both time consuming and costly, with no guarantees that a patent will ever be granted. This Part will first further describe prior art and how it relates to and uniquely affects the cannabis indus­ try.

Next, this Part discusses the risks of cannabis patenting in relation to the “enablement” and “non-obviousness” patent  requirements. Last, this Part discusses the significant research hurdles cannabis busi­ nesses face.

 

A. What Is Prior Art and How Does It Relate to Cannabis?

Prior art is generally defined as the previous information that a pat­ ent application is compared against to ensure that only meritorious inventions are awarded protection.73 When reviewing a patent appli­ cation, patent examiners perform a worldwide search for various forms of prior art to determine if the claimed invention is already de­ scribed, which may lead to a rejectio n.74 Typically, prior art compels patent rejection if: (1) a single piece of prior art describes the new invention in whole; (2) multiple pieces of prior art can be combined to create the new invention; (3) the new invention would be obvious to create by a POSITA; or (4) the claimed invention was on sale or used in public a year prior to the filing of the patent application.75 Al­ though some cannabis prior art exists, it is different than prior art in other industries.

The U.S. patent system promotes industrial growth by encouraging those within an industry to publish their inventions and discoveries.76 But until recent widespread cannabis decriminalization, cannabis in­ novation was discouraged and suppressed, 77 causing a lack of cannabis literature that qualifies as prior art.78 Further, cannabis-related trans­ actions have long gone unrecorded, making it difficult to determine if a new cannabis-related invention was previously on the market or used in public.79 Patent examiners are under time restrictions and thus often fail to find a piece of relevant prior art or they otherwise misin­ terpret existing prior art.80 Given the suppressed nature of cannabis­ related prior art and the time constraints examiners operate under, patent examiners may miss relevant prior art, and then inadvertently grant invalid patent claims. If a patent examiner grants a patent in spite of preclusive prior art, then a competitor may seek to invalidate the patent through judicial or agency action.81

Cannabis prior art, whether used to invalidate an existing patent or cited by an examiner to deny a patent application, can be difficult to find, but there are available disclosures to which emerging businesses should be aware. For example, the Open Cannabis Project (“OCP”), whose goal was “to defend the richness and diversity of cannabis from overbroad patents,” was created to prevent commonly used marijuana inventions and plant types from receiving patent protection.82 The OCP compiled over a thousand genetic sequences of different varia­ tions of the cannabis plant, publishing them as prior art.83 The OCP shut down in May of 2020, but there are multiple cannabis databases cannabis businesses can utilize such as The Phylos Galaxy84 and Medi­ cal Genomics.85

The small-business benefits of these prior art compilations are three-fold. First, they give those in the field a possible mechanism to challenge the validity of another’s patent, or a defense mechanism for possible infringement litigation.86 Second, those who wish to cultivate and grow cannabis can use the plant varieties and inventions disclosed on these databases without fear of patent-infringement litigation.

Third, they can be a useful reference for small businesses that wish to pick specific varieties of the cannabis plants based off factors such as the content of different cannabinoids, turpentines, or other organic compounds.

 

B. Patents Require Invention Disclosure

The original crafters of American patent law sought to  maintain a quid pro quo within the patent  system.87 On  one hand,  the  system seeks to promote innovation by promising an inventor the sole right to exclude others from creating and using his or her invention for a finite period of time. 88 On the other hand, in return for this exclusivity, the patentee  must  provide  a written description detailed  enough to enable a POSITA to recreate and use the invention. 89 Enabling a POSITA to recreate an invention once the twenty-year patent  monopoly  lapses helps “[to] promote the Progress of Science and useful Arts” by suffi­ ciently teaching those in the field of the new technology, creating an opportunity to build upon the technology.90

Although invention enablement’s quid pro quo with a twenty-year technological monopoly furthers innovation, it can disadvantage emerging businesses with limited resources. Once a patent or patent application is published, its enablement component is available world­ wide.91 Theoretically, anyone can use the patented  invention’s description and produce or reduce the invention to practice.92 Consequently, there are no patent police.93 Patent holders must police their own IP and initiate judicial action if they believe someone is infringing on their patent.94 For an emerging cannabis business, given the world­ wide cannabis black-market presence, policing a patent may be logisti­ cally and financially impossible. Those who participate  in  black­ market marijuana business dealings obviously do not feel inclined to abide by the law. They may infringe on a marijuana patent, and given that they are on the black  market, will do so on a secretive basis, with the chances that they are caught infringing on a patent low.

Pursuing patent  infringement  damages  or  declaratory  judgments can be expensive.95 For example, the average litigation costs for a pat­ ent lawsuit wherein the remedy sought is $1 million-$25 million, are

$1.6 million.96 Other forms of review through the USPTO, while much less expensive than classic litigation, still can cost $100 thousand-$1 million.97

For emerging cannabis businesses, these litigation costs are unlikely sustainable, as was the case of UCANN mentioned above.98

 

C. The Hurdles in Conducting Cannabis Research

In the American patent system, small businesses and micro entities make up over a fourth of patent holders.99 In 2015, independent in­ ventors received over 25,000 granted patents.100 But small businesses and individual inventors in the cannabis world face unique hurdles. Among them, the ability to conduct marijuana research legally may be the biggest.101 Until the 2018 Farm Bill’s passage, research on all forms of cannabis fell under the CSA’s strict regulations.102 Under the 2018 Farm Bill, cannabis containing less than 0.3% THC, legally named “hemp,” is no longer a controlled substance as defined in the CSA.103 Thus, forty-eight states have created hemp cultivation and re­ search programs,104 opening up numerous opportunities for emerging cannabis businesses. But the same cannot be said about cannabis con­ taining over 0.3% THC, i.e., marijuana.

Marijuana,  as a Schedule I drug under the CSA, is subject  to  the most strict drug research regulations.105 Over the last forty-five years, the Drug Enforcement Agency (“DEA”) has consistently rejected pe­ titions that would reclassify marijuana to a lower  schedule,  which would ease research constraints.106 As it stands, the CSA sets forth regulations on who can grow marijuana for research and who can con­ duct the research,107 with both activities subject to near impossible licensing procedures.108 For example, the University of  Mississippi (“Ole Miss”) is the only entity licensed by the federal government to grow marijuana for research.109 Ole Miss has been  the  exclusive grower of research marijuana in the United States since 1968,110 and although the DEA actively receives applications from other entities seeking to grow research marijuana, the DEA has accepted none.111

Research marijuana grown and distributed by Ole Miss has not met necessary scientific standards. 112 Researchers have found Ole Miss’s marijuana contaminated with various substances such as mold and lead.113 Not only can these contaminants potentially harm researchers and human subjects, they can potentially skew research results.114 Quality-control testing by researchers revealed discrepancies between the claimed and actual potency of  Ole Miss’s research marijuana. 115 One research group requested marijuana with a 13% THC concentration, but received cannabis that contained only 8% THC, even though Ole Miss packaged the cannabis as containing the promised 13% THC.116 Conducting research with flawed materials can yield flawed results, running counterproductive to the goals of research.117

Further, American businesses are moving research operations over­ seas to countries where cannabis research is less regulated and more governmentally encouraged,118 likely compounding the issues faced by emerging cannabis businesses. For example,  Israel maintains the  old­ est and most well-developed cannabis research program  in  the world.119 Over the last fifty years, numerous cannabis breakthroughs, such as the discovery of the human  endocannabinoid system,  have come via Israel-based research.120 Due to  significant  cannabis  re­ search regulation in the U.S. and comparatively less restrictions  in Israel, fifteen U.S.-based companies have moved their research opera­ tions to Israel.121 Israeli companies conduct significant  research-not only on the components  of  cannabis-but  also how these components can treat conditions such as autism, Parkinson’s, and schizophrenia. 122

Conducting research overseas is nearly impossible for small busi­ nesses, whereas foreign countries incentivize large businesses to actu­ ally move their operations there.123

Ultimately, these foreign-based businesses are free to patent their technology  in the  United  States, likely capturing a large part of  the  available  market  while leaving small U.S. entities at an IP disadvantage.

 

D. Should Emerging Cannabis Businesses Utilize Patent Protection?

Whether it makes business sense to patent cannabis-related prod­ ucts boils down to a cost-benefit analysis. In summary, the benefits of patent protection include a twenty-year monopoly over the claimed invention. 124 A patentee has the sole “right to exclude others from making, using, offering for sale, or selling the invention.”125 While a business awaits the  grant of  patent, it can claim their  product is “pat­ ent pending,” which can have a positive effect on  consumer  confi­ dence in the product.126 Once a patent is granted, a business can announce on packaging and other marketing that the product  or pro­ cess is patented, likely adding to branding and consumer  confidence. But often the costs-financial and material-may  weigh  against  pur­ suing and maintaining patent protection.127

By pursuing patent protection, cannabis business owners risk wast­ ing money acquiring an invalid or infringing patent.128 Seeking patent protection can take years and cost thousands of dollars without a guarantee that the patent will result in profit.129 But often for emerg­ ing businesses, the legal rights that patents grant are not the only ben­ efit of patent ownership and monopolization.

Patents can be a critical component for an emerging business to at­ tract venture capital financing_ 130 Venture capitalism inherently in­ volves a degree of uncertainty, leading investors to  weigh  several factors when deciding what businesses they wish to invest in.131 Pursu­ ing patents signals to venture capitalists that a business is diligent and focused because the business has put in the time, effort, and money to file for a patent.132 A business that has filed at least one patent appli­ cation receives venture capital funding 76%  times faster than a busi­ ness with no patent portfolio.133 Startup businesses’ patent portfolios further incentivize venture capitalists because the capitalists can po­ tentially recover the portfolio if the business they invested in fails.134

Businesses must weigh the costs and benefits of pursuing patents in light of their business goals and overall plans. The cannabis industry encompasses multiple sub-categories of business types.135 The type of business and level of goals may dictate the decision to seek patent protection, but businesses should  keep in mind that patents are not the only form of protection for their IP.


IV. TRADEMARKS AND CANNABIS

Trademarks are a valuable form of IP businesses use to protect and build their brands.136 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.”137 Trademarks do not have a finite pro­ tection period, as they remain in effect as long as the owner uses the mark in association with goods and services.138

Generally, there are two types of trademark protection that canna­ bis businesses should consider: federal trademark protection and state trademark protection. Cannabis businesses may also attempt to in­ voke common law trademark rights.139 Each trademark form confers different rights and protections. Cannabis businesses should utilize all forms of trademarks as they offer unique brand protections that other forms of IP do not.

Given the lack of clarity regarding federal trademarks in relation to cannabis, cannabis businesses must use them strategically, with state trademarks and common law rights used to fill the gaps left by their federal counterparts. Exploring federal trademark registration should be a cannabis business’s first step as trademark registration provides the greatest benefit. Federal trademark registration gives a rights holder protection from confusingly similar marks entering the market

across  the  entire  United  States.140 Federally  registered  marks  may have the “®”  stamp on their logos and  brand  names, which helps de­ ter copycat producers by putting the public on notice that a brand is being exclusively used.141 Federal trademark protection also eases the process of bringing infringement claims to federal court and can lead to a business receiving greater legal remedies.142 While federal trade­ marks provide  the  most legal rights and  protections,  they also carry the most strict application criteria.

Much like the patent process, federal trademark registration begins with  an  application  to  the  USPTO.143 Then,  an  examiner  reviews

whether the applicant met all statutory and regulatory registration re­ quirements.144 There are many nuanced federal trademark registra­ tion requirements, but only a few merit discussion. First, federal trademark protection requires that a business use the word, phrase, symbol, or design in interstate commerce.145 If a business only uses its mark in intrastate commerce,  then the mark does not qualify for fed­ eral trademark registration.146 Second, a trademark must be descrip­ tive and not generic in nature.147 Generic words and symbols cannot be registered for protection because everyone has the right to use ge­ neric words and symbols to describe their goods or services.148 Trade­

mark registration also requires that the mark not be confusingly similar to another mark in commerce, i.e., it must be unique. 149 Fi­ nally, the trademark must be used in lawful commercial actions.150

The final requirement is where cannabis gets hung up.

The federal illegality of marijuana leaves many cannabis businesses’ marks on goods unprotectable, even if the goods are made and sold in jurisdictions with legal cannabis.151 Marks on goods such as packaged psychoactive marijuana, CBD products derived from marijuana, in­ gestible CBD  products, and consumption  devices such as pipes and vapes remain trademark ineligible.152 This poses significant risk for businesses wishing to establish their brands. For example, if Company A sells a trademark-ineligible marijuana drink and Company B subse­ quently begins selling a similar drink with Company A’s logo on it, Company A could not bring federal suit against Company B because Company A does not and cannot own federal trademark rights to its logo for that marijuana drink.

Despite the inability to federally register certain cannabis-related marks, there are strategies small businesses can utilize to help mimic the benefits of direct federal trademark  registration. The strategy most commonly used by cannabis businesses is best described as “box­ing out” competitors from using their unprotected marks.153 In order to “box out” competitors, businesses will register their marks for an ­cillary items such as clothing, stickers, and federally legal- and trade­ mark  registration-eligible  CBD  products.154 Brand   recognition  is important for businesses, and building a trademark portfolio based on ancillary products can help cannabis businesses build their overall brand within the market. This strategy not only helps build brand rec­ ognition, but also puts competitors on notice that the mark is pro­ tected in some way, albeit not on the marijuana product.

Another commonly used strategy is placing the “TM” logo on mari­ juana items. Using the “TM” logo is an attempt to invoke common law trademark rights, which do not require registration.155 But these common law rights only exist in the geographic  area  in which  the marks are used in commerce and are not subject to any statutory rem­ edies.156 These common law rights can be difficult to uphold in a law­ suit, but the recognizable “TM” logo may  help  deter  potential copycats.

Cannabis businesses can also acquire state trademark registration for their otherwise federally illegal goods.157 State trademark registra­tion is inexpensive and easily obtainable, but does not grant nearly the same protections as federal trademark registration.158 The state trade­mark schemes of the fifty states all differ, with some granting greater protection and enhanced rights than others.159 In  some states, trademark registration is simply a certificate that may serve in state court as evidence  of  a  common  law infringement  claim.160 In  other states, trademark  registration  may  provide  prima  facie  evidence  of the mark’s validity and that the mark’s owner has the exclusive right to use the mark in association with goods and services.161 Unfortunately, claimants can only commence state trademark infringement action in the state where the trademark is registered, with many states further limiting protection to the city or “geographic area” where the mark is sold and used.162

Regardless of the strength of a state’s trademark laws, cannabis businesses should register their marks within all states they do busi­ ness.

State trademark registration does not offer the same protections and benefits as federal trademark registration, but cannabis businesses should make every attempt to protect their IP through every available mechanism.

V. OTHER MECHANISMS FOR SMALL CANNABIS BUSINESSES TO PROTECT THEIR INTELLECTUAL PROPERTY

With the uncertainty surrounding cannabis patents and trademarks, emerging cannabis businesses must leverage every possible avenue of protection. Trade secrets and the first-mover advantage can work hand-in-hand to help emerging businesses clear the IP hurdles  that patent and trademark law present.

Trade secrets are a unique form of  IP that protects secret informa­ tion which confers economic benefit to a business.163 Trade secrets are perhaps the most useful tool that a cannabis business can utilize be­cause they do not require any form of registration or public disclosure.164

The first-mover advantage, while not technically an IP right, can supplement trade secrets. The first-mover advantage is the economic principle wherein the first to introduce a product or concept  to the market is usually at an economic advantage compared to competi­ tors.165 This concept can ride the coattails of trade secrets, as busi­ nesses can create potentially profitable goods or services in secret and then be the first to introduce the product or service to market.

These mechanisms are frequently used by both emerging and established businesses in other industries and should be used to a cannabis busi­ ness’s advantage.166

 

A. Trade Secrets and Their Place in Cannabis

U.S. businesses have long used trade secrets as a tool to protect secret information from falling into the hands of competitors. Forty­ seven states have adopted the Uniform Trade Secrets Act (“UTSA”), which defines a trade secret as:

Information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the cir­ cumstances to maintain its secrecy.167

In 2016, Congress passed the Defend Trade Secrets Act (“DTSA “),168 which is written nearly identical to the UTSA but gives claimants a federal mechanism for bringing a trade secret misappropriation claim to federal court.169 There are some differences between the two legal schemes, but this Comment will not discuss them.

A trade secret is business-related information that derives value from the fact that it is not readily ascertainable by the public and com­ petitors.170 Unlike patent and trademark protection, trade secrets do not have rigid eligibility requirements, as virtually any secret that gives advantage   to a business over its competitors can qualify. 171

Trade secrets do not undergo review by a federal agency and do not require any third-party review.172 Although there is no registration process for a trade secret, businesses must be proactive in maintaining their trade secrets as required by statute. 173 In order for a business to bring a lawsuit against  a business  who has stolen or “misappropriated” a trade secret, the suing business must establish that the secret pro­ vided economic value and that reasonable means were taken to pro­ tect the secret.174 Establishing that a trade  secret  exists  does  not require that the information be in absolute secrecy.175 For  example, a business’s board members may know a secret business practice and the secret business practice may still be considered a trade secret.176 In order to maintain valuable secrets, businesses can utilize various physical and legal means.177 The first thing a business should do to protect its trade secrets is not tell the secrets to anyone who does not need to know them. Maintaining a small group with knowledge of the secret is the single most important tool to keeping a secret.178 Next, businesses should place in sensitive business documents “proprietary legend” clauses that announce the secrecy, sensitivity, and confidenti­ ality of the information therein and that copying is prohibited.179 Pro­ prietary legends should ideally be tailored  to the content contained  in the document and should be used only when necessary as overuse can diminish the impact the legends have.180

Courts consistently recognize the importance of confidentiality and non-disclosure agreements (” NDA”).181 NDAs should  be tailored  to the content that is being disclosed, if possible.182 A properly crafted and implemented NDA creates an implied duty of confidentiality with the recipient of the information and is evidence that the secret holder took reasonable measures to protect the secret.183

Although not necessary to bring a trade secret misappropriation claim, businesses should implement protective measures such as care­ fully locking areas or places where sensitive documents are stored or where business techniques  take place.184 Access to these areas should be limited to those who absolutely need access.185

Like other IP forms, trade secrets have their disadvantages. Trade secret law does not protect against reverse engineering and accidental discovery of the secret.186 Further, if someone illegally obtains a trade secret, that trade secret may become fully accessible to the public, thus diminishing the secret’s overall business value.

Despite these risks, cannabis companies should consider taking steps to protect se­ cret practices, because not only can lax protection procedures leave secrets vulnerable, they can foreclose a business’s ability to pursue le­ gal recourse.

 

B. Trade Secrets vs. Patents

Trade secrets have advantages and disadvantages  when compared with patent protection. The most prominent advantage is that they can save time and money. Trade secrets do not require an application pro­ cess and do not bear any direct costs such as application fees or attor­ ney fees.187  The only costs are the costs of keeping the secret, which may include increasing cyber security, preparing NDAs, and imple­ menting physical security systems.188  Patents  on the other  hand can cost tens of thousands of dollars in filing and attorney fees.189  Patents are also finite as their protection only lasts for twenty years from the application time.190 Yet trade secrets last for as long as they are kept a secret and can theoretically  last forever.191  For  example,  the  recipes for Coca-Cola and Kentucky Fried Chicken’s chicken batter are both trade secrets that remain  unknown  to  the  public, and  which continue to bring their respective  businesses  revenue.192  Conversely,  patents and patent applications  are  published  and available  to the  public.193 As discussed, patentees must  sufficiently  describe  their invention  in the application process such that a POSITA  could  reproduce  it with­ out difficulty.194 Patents do not allow for sensitive information to re­ main secret. Trade secrets do  the  opposite. Trade  secret law protects the secrecy of profitable information and practices.195 Further, trade secret law can protect information or business practices that would otherwise not be patent eligible.196

Trade secrets do have some disadvantages when compared to patent protection. Similar to the prior art and public use principles of patent law, courts do not recognize trade secret rights for information that is directly known to the public.197 If one were to reverse engineer a business’s trade secret, rights for the information would no longer exist whereas patents give the holder exclusive rights.198

Realistically, emerging businesses should not build either a trade secrets portfolio or a patent portfolio, but  rather  they should  utilize both protections strategically.199 There may be times when a patent is preferable.  Patents  mitigate  IP risks in general whereas trade secrets are risky, especially if an industry has a critical need for an innova­ tion.200 For example, if a business invents a cure for a critical need and chooses to rely on trade secrecy, another  business  could  indepen­ dently invent the same cure and patent it because the first inventor never disclosed the  invention to the public.201 This situation would prevent the first-inventing company from profiting off something it originally invented. 202

When deciding if IP should be protected by trade secrecy or patent coverage, cannabis businesses should assess each protection’s pros and cons, the company’s goals, and the IP’s value.

Both forms of protec­ tion offer unique and valuable rights, and both can be valuable to a business’s IP portfolio.

 

C. First-Mover Advantage

The first-mover advantage is a term that refers to the economic ad­vantage that a business has when it is the first competitor to introduce a product or service to the market.203 Because it is first, the business

can establish and maintain the product or service’s brand recognition and overall market dominance without immediate competition.204 The first-mover advantage is not technically an IP term, but when busi­nesses combine the strategy with trade secrets, businesses can create novel products and concepts in secret and  then be the  first  to intro­ duce them to market. 205 The major disadvantage that a first mover has is that competitors can attempt to copy or improve upon the first­ mover’s practices. But if first movers keep their trade secrets and techniques in-house, they can mitigate the effects of intentional copy­ ing.206

Albeit simple in concept, businesses should consider the first­ mover advantage as a supplemental strategy to their IP portfolio.

 

VI. CONCLUSION

Emerging cannabis businesses face significantly different hurdles compared to emerging businesses in other industries. Due to federal laws and administrative rulings, cannabis businesses cannot and do not enjoy the same patent and trademark advantages that emerging businesses in other industries enjoy.

These IP disadvantages mean that cannabis businesses must be mindful of  their legal options  and take advantage  of  these options in an effective and creative manner. Ideally, emerging cannabis  busi­ nesses should utilize a combination of IP mechanisms to protect and build their brands as each confers different  protections. When patent­ ing is not a viable option, businesses can utilize ancillary and state trademarks, carefully protect trade secrets, and capitalize on branding techniques like the first-mover advantage. But given the cannabis in­ dustry’s exponential growth, the federal government  must  remove the IP hurdles that emerging cannabis businesses face. Congress can and should act to faithfully execute its duty to “promote the Progress of Science and useful A rts”207 and grant cannabis businesses rights en­ joyed by other industries. The most  obvious  measure  Congress can take is legalizing the cultivation, transportation, sale, and use of mari­ juana on a federal level. Such action would likely create uniform regu­ lation throughout the country whereas currently marijuana law is a patchwork of state law.

Federal legalization would quickly clear the questions over the le­ gality of marijuana-related patents and would likely fill the gap of missing prior art. Legalization may entice black-market participants to seek patent protection, or more likely, simply disclose their technol­ ogy, thereby placing it into the public domain. If these inventions and innovations are known to the public, they can qualify as prior art, preventing cannabis patentees from acquiring overly broad patent rights. Over time, cannabis businesses seeking patent protection would all be on an equal playing field, as the scope of patent rights would be more precise instead of overly broad as it likely is today.

Legalization would allow for more cannabis research opportunities within the United States, adding an influx of money to the economy while helping the United States gain a global foothold on the interna­ tional cannabis industry as the industry is currently digging its founda­ tion in foreign nations. Enticing research would also help the above­ mentioned realm of cannabis patents by progressing technology to a point where a cannabis patent is undoubtedly novel and non-obvious. Furthermore,  legalization   would   bring  black-market   participants into the legal market. Such a move would allow for better policing of patents, trademarks, and trade secrets as legal participants are subject to increased regulations  including inspections and disclosures. Such regulations also increase the tracking of goods from production to market, increasing policing capabilities while also increasing brand competition.

Although legalization could potentially cure many of the problems outlined in this Comment, such a drastic change is unlikely in the near future. Even if the federal government’s policies begin to move away from marijuana prohibition, such legalization is unlikely to be instantaneous.

Until the federal government acts, those wishing to break into the cannabis industry should utilize a combination of IP techniques. Can­ nabis businesses should be cautious when weighing whether to pursue patent protection  because patents would force businesses to disclose their innovation  while leaving the  door open to potential infringement or costly litigation. But patents can offer monopolistic rights and op­ portunities for venture capitalist funding.

In conjunction with patents, businesses should also rely on protec­ tions such as trade secrets and trademarks. Trade secrets give busi­ nesses the most flexibility as it is the one form of IP that  creates absolute secrecy. In what has become an extremely competitive indus­ try, absolute secrecy is valuable and necessary. Along  with  trade secrets, ancillary trademarks on products  that are related to the can­ nabis business, but not marijuana, allow for brand recognition and consumer confidence in the  brand. Trademarking  ancillary  products can box out competitors and disincentivize any willful copying.

Overall, cannabis businesses’ IP options are limited but not impossi­ ble to implement. There are measures these businesses can take, and if done strategically, they can build successful, long-lasting businesses.

 

 

DOI: https://doi.org/10.37419/LR.VS.11.6

* Staff Editor, Volumes 7 and 8, Texas A&M University Law Review. J.D. Can­ didate, 2021, Texas A&M University School of Law; B.S. Biomedical Sciences, 2016, Northern Arizona University.

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  138. There are other nuanced manners in which a trademark can be invalidated that will not be discussed in this Comment.
  139. Id.
  140. Id.
  141. Id.
  142. Lindsay Stern, Roses Are Red, Marijuana Is Green, Cannabis Trademarks Are Unlawful but What Exactly Does That Mean?, 27 FED. Cm.  B.J. 241, 250-51 (2018).
  143. Trademark Process, supra note 136.
  144. Id.
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  146. Id.
  147. US. PAT. & TRADEMARK OFF., PROTECTING YouR TRADEMARK: ENHANC­ ING YouR RIGHTS THROUGH FEDERAL REGISTRATION 8 (Feb. 2020), https://www.uspto.gov/sites/default/files/documents/BasicFacts.pdf [https://perma.cc/G5Y9-YFDK].
  148. Generic Trademark: Everything You Need to Know, UPCOUNSEL, https://www
  149. Id. Confusingly similar means the trademark examiner believes there is a like- lihood of confusion between your mark and an existing mark.
  150. Stern, supra note 142, at
  151. Id.
  152. Pama Mehrbani, The Challenging State of Brand Protection in the Cannabis Industry, PORTLAND J. (Sept. 5, 2019), https://www.bizjournals.com/portland/ news/2019/09/05/the-challenging-state-of-brand-protection-in-the.html [https://perma
  153. See Kourtney Mulcahy, Trademark Protection and the Cannabis Sector, JD SuPRA (Oct. 7, 2019), https://www.jdsupra.com/legalnews/trademark-protection-and­ the-cannabis-45642/ [https://perma.cc/96KL-FFHW].
  154. See id.
  155. Sam Kamin & Viva R. Moffat, Trademark Laundering, Useless Patents, and Other IP Challenges for the Marijuana Industry, 73 WASH. & LEE L. REV. 217, 258 (2016).
  156. Alison Malsbury, Does Your Cannabis Business Qualify for Trademark Pro­ tection? The Answer Is Most Certainly “Yes!”, HARRIS BRICKEN (Jan. 21, 2020), https://harrisbricken.com/cannalawblog/ does-your-cannabis-business-qualify-for­ trademar k-protection-the-answer-is-most-certainly-yes/ [https://perma.cc/WMV7- 26UY].
  157. Id.
  158. Kamin & Moffat, supra note 155, at 257.
  159. Lee Ann W. Lockridge, Abolishing State Trademark Registrations, 29 CAR­ DOZO ARTS & ENT. L.J. 597, 618 (2011) (describing the differences in state trademark schemes).
  160. Id.
  161. Id.
  162. Kamin & Moffat, supra note 155, at 257.
  163. Trade Secret Policy, U.S. PAT. & TRADEMARK OFF., https://www.uspto.gov/ip­ policy/trade-secret-policy [https://perma.cc/8U5E-A3GR].
  164. Id.
  165. Evan Tarver, First Mover Definition, INVESTOPEDIA (Jan. 15, 2020), https:// www.investopedia.com/terms/f/firstmover.asp [https://perma.cc/F27J-6PDK].
  166. See Catherine Lui, Trade Secrets and Start-Ups: What to Do When Secrets Walk out the Front Door, JD SUPRA (Dec. 22, 2017), https://www.jdsupra.com/ legalnews/trade-secrets-and-start-ups-what-to-do-10726/ [https://perma.cc/LQ5H­ HRLY]; Emily Ashcraft, Monsanto Files Injunctive Lawsuit to Protect Trade Secrets, LAW STREET (Aug. 14, 2020), https://lawstreetmedia.com/agriculture/monsanto-files­ injunctive-lawsuit-to-protect-trade-secrets/ [https://perma.cc/E7DG-U6BV].
  167. UNIF. TRADE SECRETS ACT § 1 (UNIF. L. CoMM’N, amended 1985).
  168. 18 u.s.c. § 1836.
  169. Bret Cohen et , Recourse for Trade Secret Misappropriation Under the Fed­ eral Defend Trade Secrets Act, LExrsNExrs (Apr. 18, 2018), https://www.lexisnexis.com/lexis-practice-advisor/the-journal/b/lpa/posts/recourse-for-trade-secret-misappro priation-under-the-federal-defend-trade-secrets-act [https://perma.cc/W729-C5GF].
  170. Id.
  171. Id.
  172. How to Apply for Trade Secret Protection, UPCOUNSEL, https://www.upcounsel.com/how-to-apply-for-trade-secret-protection [https://perma.cc/DTW9-GPV3]
  173. See 18 U.S.C. § 1836.
  174. Trade Secret Policy, supra note 163.
  175. Frequently Asked Questions: Trade Secrets, WoRLD INTELL. PROP. 0Ro., https://www.wipo.int/tradesecrets/en/tradesecrets_faqs.html [https://perma.cc/ZS65- R7GZ].
  176. Id.
  177. Pamela Passman, Eight Steps to Secure Trade Secrets, WoRLD INTELL. PROP. ORo. (Feb. 2016), https://www.wipo.int/wipo_magazine/en/2016/01/artic1e_0006.html [https://perma.cc/ZJM9-Q6XD].
  178. Id.
  179. Should You Use Proprietary Legends?, HARNESS DrcKEY, https://www.hdp.com/wordpress/wp-content/uploads/2020/01/Should-You-Use-Proprietary-Legends.pdf [https://perma.cc/Y6HS-L63E].
  180. Id.
  181. Passman, supra note 177. Courts use both the terms “nondisclosure agree- ment” and “confidentiality agreement” interchangeably.
  182. Id.
  183. Nilssen v. Motorola, Inc., 963 F. Supp. 664, 680 (N.D. Ill. 1997).
  184. Passman, supra note 177.
  185. Id.
  186. Andrew Beckerman-Rodan, The Choice Between Patent Protection and Trade Secret Protection, 84 PAT. & TRADEMARK OFF. Soc’y 371, 391 (2002).
  187. Id. at 400-01
  188. Passman, supra note 177.
  189. Beckerman-Rodan, supra note 186, at 400 n.210.
  190. Id. at 383.
  191. Frequently Asked Questions: Trade Secrets, supra note 175.
  192. Sheppard Mullin Richter & Hampton LLP, Don’t Spill Your Trade Secrets: Protecting Your Competitive Advantage in the Food and Beverage  Industry  (Part 1 of 2), LEXOLOGY (July 17, 2019), https://www.lexology.com/library/detail.aspx?g=8c5da9 57-d6c6-4c2b-alb2-2d2821be6c48 [https://perma.cc/P9QR-NCP2].
  193. Beckerman-Rodan, supra note 186, at 401.
  194. Supra Section 111.B.
  195. See generally Beckerman-Rodan, supra note 186.
  196. James Pooley, Choosing Between Patents and Trade Secrets,  a  Discussion Worth Revisiting, IP WATCHDOG (Nov. 1, 2017), https://www.ipwatchdog.com/2017/ 11/01/patents-and-trade-secrets-revisited/id=89641/ [https://perma.cc/8TDD-4OED].
  197. Id. A trade secret can be a combination of components in the public domain, but if the combination is itself known to the public, trade secret rights would not apply. See, e.g., Minn. Mining & Mfg. Co. v. Pribyl, 259 F.3d 587, 595 (7th Cir. 2001).
  198. Pooley, supra note 196.
  199. Id.
  200. Id.
  201. Id.
  202. Id.
  203. Tarver, supra note 165.
  204. Id.
  205. Andrew Beattie, Understanding  First Mover  Advantage, INVESTOPEDIA   (Nov. 10, 2016), https://www.investopedia.com/articles/investing/111016/understanding-first­ mover-advantage.asp [https://perma.cc/5ZBH-XJVX].
  206. Id.
  207. U.S. CoNsT. art. I, § 8, cl. 8.
About the Author
J.D. Houvener is a Registered USPTO Patent Attorney who has a strong interest in helping entrepreneurs and businesses thrive. J.D. leverages his technical background in engineering and experience in the aerospace industry to provide businesses with a unique perspective on their patent needs. He works with clients who are serious about investing in their intellectual assets and provides counsel on how to capitalize their patents in the market. If you have any questions regarding this article or patents in general, consider contacting J.D. at https://boldip.com/contact/