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What Cannabis Entrepreneurs Need To Know About Intellectual Property

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This is a sponsored post by Larry Sandell of Mei & Mark LLP.

This post was updated on May 22, 2019 to reflect recent policy developments.

Marijuana industry leaders stay busy developing business plans, building brands, inventing technologies, creating supply chains, cultivating new strains, hiring employees, securing funding, and obtaining licenses. But it is essential for cannabis entrepreneurs to understand intellectual property (IP) rights and the benefits they can provide—and, perhaps most importantly, the potential problems that may occur when IP rights are ignored or overlooked for too long.

Because of ongoing federal cannabis prohibition, businesses in this space face additional IP challenges that don’t exist in other industries. This article will give you a quick sense of what you need to know in order to protect your rights.

Fundamentally, the law gives IP owners the right to exclude. Effectively acquired IP rights can give cannabis entrepreneurs the legal footing to prevent competitors from ripping off their brands, their technologies, their designs, and their secrets. In the cannabis space, where the law excluded so many for so long, it may seem untoward to engage in exclusionary practices, but IP is a very different animal than prohibition. As the cannabis industry continues to grow and established companies enter the market, early-acquired IP rights will prove indispensable. Beyond offering market protections and a competitive edge, IP rights can be licensed to generate additional recurring revenue, help attract investment, and enhance valuation for exits.

Without a clear understanding of the myriad types of IP protection available—and the benefits, potential pitfalls, and resource requirements of each—many entrepreneurs view obtaining effective IP protection as a daunting task. And unless an experienced IP attorney is retained, they are not wrong. Nonetheless, IP rights should be considered early and often in any business venture, especially in a nascent industry like this one. Those who procrastinate this critical business task risk permanently forfeiting rights, and may sometimes find IP roadblocks placed in their path by competitors who beat them in a race to the U.S. Patent and Trademark Office (USPTO) that they didn’t even know they were competing in.

IP rights vary widely, but are best understood by first considering which aspects of your budding cannabis business that you want to protect—namely: your brand, your technology, your cannabis strains, your designs, or your business secrets.

Protecting Your Brand:

Trademarks identify the source of a product or service, and serve to protect the goodwill and market recognition that a business has developed. Most commonly, a trademark is embodied in the name of a product, service, or business, its logo, or a slogan. Trademarks do not have a set expiration date, but generally remain enforceable so long as they are being used in commerce. However, to maximize rights (and avoid getting sued), it is important to search to make sure your proposed brand is “clear” prior to using it in commerce and, once in use, to effectively control your brand in the marketplace.

Federally Registered Trademarks provide the strongest protection for your brand, and enable you to enforce your trademarks anywhere in the United States. Registration requires both legal “use in commerce” and a lack of “confusingly similar” trademarks in your business area. If you aren’t using your trademark in commerce yet, but intend to do so, an “Intent to Use” (“ITU”) application can preserve your rights until you actually begin legal commercial activity. Federally registered marks are denoted by the ® symbol. Having an experienced trademark attorney file an application on your behalf typically costs $1,000-$1,500, and can help you maximize protections and avoid pitfalls.

Because marijuana is still federally illegal, the requirement for legal “use in commerce” presents a unique challenge for cannabis entrepreneurs seeking federal trademark protection. There are two proven strategies. First, you can trademark around the edges: While federal trademarks on cannabis, itself, may be unavailable, trademarks for most ancillary products and services can be obtained. For example, federal trademark registration is available for products and services supporting consumption and cultivation, and for sales of legal medical herbs.

Second, you can play the long game, and file an ITU claiming a bona fide intent to use a trademark in legal commerce in the future—i.e., anticipating that federal legalization will convert your commercial activity to legal “use in commerce.” For example, the “CANNIBIS CUP” is using this ITU strategy to play the long game. This ITU strategy may be particularly desirable to entrepreneurs who seek to lock down newly minted strain names or other important branding. As long as appropriate extensions of time are filed with the USPTO every six months, an ITU application can survive for three years after the USPTO “examines” the mark. So, playing the long game is a bet that federal legalization will occur in the near future.

The 2018 Farm Bill ostensibly legalized hemp (i.e., cannabis with <0.3% THC) and hemp-derived CBD. Accordingly, in May 2019, the USPTO publicly announced that hemp and hemp-derived CBD products may be eligible for federal trademark registration—at least as far as the Controlled Substances Act (CSA) is concerned. However, the USPTO also indicated that such products, if sold as food, food supplements, medicine, or the like, are subject to regulation by the Food and Drug Administration (FDA) and would not be considered to have legal “use in commerce” unless permitted by the FDA. Thus, until the FDA acts, most hemp products are still not eligible for Federal trademark protection.

State Registered Trademarks: If federal trademark registration is unavailable, it may be worthwhile to consider registering your trademarks in the states where you conduct business. Many states permit some form of state-level trademark registration. It should be noted, however, that a state-level trademark registration may typically only be effectively enforced within the boundaries of the registering state. For example, if you had a California trademark registration, you could not use it to prevent a competitor from using your trademark in Colorado. State registered trademarks may be used to fight “cybersquatters.”

While virtually all states have a “legal use” requirement, such requirement does not prohibit trademark registration in states where cannabis is legal for recreation and/or medical purposes. However, such requirement still means that your business must already be engaged in legal commerce—and is in compliance with relevant state cannabis licensing requirements—before applying for registration. Unfortunately, most states do not allow “intent to use” trademark applications. (Washington State is a notable exception.) Thus, even in a legalization state, a prospective cannabis grower might not be able to begin securing a state-level trademark registration until after she is granted a grow license in that state.

Common Law Trademarks: Even without any registration, your brand, if actually used in commerce, may retain some protection. Common law trademarks are often designated by the TM symbol, which merely signifies that the brand owner thinks that it has a valid trademark. It is, however, notoriously difficult to enforce common law trademarks. Accordingly, businesses that save money on the front end by skipping trademark registration may regret it later if a competitor subsequently tries to rip off their brand.

Copyright Registration for Logos: In addition to trademark protection, brand logos may be protected by copyright law. Through a copyright, a logo may be protected as a work of artistic expression rather than as a brand. While copyright registration is not strictly necessary, it provides for robust enforcement options. Additionally, the US Copyright Office allows you to register copyrights online for a small fee.

Protecting Your Technology:

Utility Patents protect an invention, and grant inventors the right to exclude others from making, using, or selling it for up to 20 years. In the cannabis space, utility patents can protect, for example, growing apparatuses and methods, extraction techniques and chemical compositions, smoking and vaping devices, software, and even plants themselves (see below). Legal use in commerce is not required, but the USPTO carefully examines each patent application to ensure that the claimed invention is adequately described, novel (new), and nonobvious. In the US, a utility patent application must be filed within one year of the first public disclosure or offer for sale of the invention. Entrepreneurs who miss this deadline permanently forfeit their ability to secure a patent. Obtaining a high quality, enforceable patent typically requires retaining an experienced patent attorney to prepare and file the application. This can cost $8,000 and up, depending on complexity of the invention.

Provisionals: Provisional patent applications may be used to delay expending these considerable financial resources for up to one year—often enough time to assess whether your invention has a good shot at commercial success. Essentially, a provisional holds your place in line for 12 months. It can protect your rights if a competitor files for a similar patent or sells a similar product during that time, and can help you avoid missing the one-year deadline for filing after selling or marketing your own invention. Using a provisional application requires filing a corresponding nonprovisional utility application within the 12 months. If a corresponding application is not filed, the provisional simply expires and its contents remain secret. While provisionals have few formal requirements and are sometimes filed by inventors without attorney assistance, cannabis entrepreneurs would be wise to at least consult with an experienced patent attorney before filing to avoid pitfalls that can render a provisional ineffective. Engaging a patent attorney to prepare and file a provisional application can cost around $3,000 and up.

Protecting Your Cannabis Strains:

Utility Patents: The USPTO has confirmed that cannabis plants may be protected by utility patents. To date, issued cannabis utility patents have claimed plants with specific chemical profiles.

Plant Patents: Plant patents are a distinct form of IP protection that protects asexually reproduced plants, and the USPTO has issued at least one cannabis plant patent. Similar to utility patents, plant patents have a life of up to 20 years, and the invented strain must be both new and nonobvious. Additionally, the one-year filing requirement still applies, so a grower loses rights to file for plant patents for any cannabis strain that he sold more than 365 days ago. Finally, growers should be aware that plant patents are sometimes considered to have less value because they are directed to a single plant genome, rendering the right to exclude both narrow and hard to enforce.

Plant Variety Protection Certificates are issued by the US Department of Agriculture (USDA), and can provide their owners exclusive rights to seeds of a new crop for 20 years. To date, no cannabis certificates have been issued. The reasons are two fold: First, a seed deposit is required, and the USDA, a federal agency, has refused to accept any. Second, certificates protect only new and distinct sexually-reproduced plants that have stable progeny. Many cannabis strains of value are asexually propagated and therefore fall outside of these requirements.

However, following the passage of the 2018 Farm Bill, the USDA, on April 24, 2019, announced that it now accepts Plant Variety Protection applications of seed-propagated hemp varieties. Thus, cultivators of industrial and CBD-heavy hemp have a newly opened path to protect their IP.

Protecting Your Designs:

Design Patents: Design Patents protect ornamental designs for functional items. For example, while the functional aspects of a vaping device may be protected by a utility patent, the way it looks—or just specific aspects of its look—may be protected by a design patent. Design patents that claim only specific design elements are broader and may be easier to enforce. Cannabis entrepreneurs in the software space should note that design patents are increasingly used to protect GUIs, especially when it comes to animated user interfaces. The same basic rules of utility patents apply to design patents, except that design patents last for 14 years from issuance (rather than 20 years from filing) and provisionals are not available. Retaining an experienced patent attorney to prepare and file a design patent application can cost $1,500 – $2,500, largely depending on the quality of drawings already possessed.

Copyright: Copyright protection can be used to protect all manner of artistic expression, whether on websites, T-shirts, or cannabis-related products. While there is an area of overlap between design patents and copyrights, design patents may (if strategically prepared) be quite broad and therefore easier to enforce.

Protecting Your Business Secrets:

Trade secrets are very different from the other IP types discussed above. Your customer lists, older secret recipes, business plans, and similar proprietary information are often best protected by keeping them secret. Still, there is always a chance that a disgruntled former employee sells or reveals your secrets, an unscrupulous competitor hacks into your computer systems, or a contractor uses your data in an unauthorized manner. Although the law varies, virtually all states offer trade secret protections that can support or compensate you in such situations. Trade secret laws, however, are typically only effective if your business had already taken reasonable steps to protect its proprietary information. An experienced attorney should be counseled to ensure that your trade secret practices are adequate under your state’s law, but uniform best practices include having all employees and contractors sign agreements that outline authorized and unauthorized data uses, having reasonable network security, and never divulging your trade secrets outside of signed NDAs.

Conclusion:

As the cannabis industry continues to grow and attract new market entrants, effectively securing IP rights has become a critical business task. Entrepreneurs who fail to assess and pursue appropriate IP rights early in the business cycle do so at they own peril. While thinking about patents, trademarks, copyrights, and trade secrets may not seem as urgent as making payroll and growing your profit margin, failing to promptly secure IP rights may undercut your business in the future, allowing competitors to rip-off the successful aspects of your business.

About the author:

Larry Sandell is a registered patent attorney with Mei & Mark LLP and has a decade of experience in IP law. He focuses his practice on drafting and prosecuting patent and trademark applications, counseling clients on strategic IP matters, litigation, and appellate practice. Larry has a passion for advising start-ups and other innovative companies, and has argued in the U.S. Courts of Appeal for the Ninth Circuit, the Federal Circuit, and D.C. Circuit. In addition to his legal practice, he is the CEO and General Counsel for a start-up medical device company.

Before entering law school in 2005, Larry fought for marijuana law reform, serving as Assistant Director of State Policies for the Marijuana Policy Project. He ran a successful ballot initiative signature drive in Nevada in 2004, putting legalization on the 2006 ballot; worked on Nevada’s 2002 ballot initiative campaign; and coordinated medical marijuana lobbying efforts in state legislatures.

Larry can be reached at [email protected]

ATTORNEY ADVERTISING NOTICE

Please note that this article may be considered attorney advertising in some states. Prior results described on this article do not guarantee similar outcomes in future cases or transactions. The opinions expressed are those of the author and do not necessarily reflect the views of the Mei & Mark LLP (818 18th St., NW, Suite 410, Washington, DC 20006), its clients, Marijuana MomentTM LLC, or any of their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

This is a sponsored post by Larry Sandell of Mei & Mark LLP.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

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Senate Schedules Hearing On Marijuana Business Banking Access

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In one of the clearest signs of marijuana reform’s growing momentum on Capitol Hill, a Republican-controlled Senate committee has scheduled a hearing for next week that will examine cannabis businesses’ lack of access to banking services.

The formal discussion in the Senate Committee on Banking, Housing and Urban Affairs on Tuesday comes as legislation aimed at resolving the marijuana industry’s financial services problems is gaining momentum. A House cannabis banking bill that cleared that chamber’s Financial Services Committee with a bipartisan vote in March now has 206 cosponsors—nearly half the body—while companion Senate legislation has 32 out of 100 senators signed on.

Please visit Forbes to read the rest of this piece.

(Marijuana Moment’s editor provides some content to Forbes via a temporary exclusive publishing license arrangement.)

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American Bankers Association Demands Answers About Hemp And CBD

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The American Bankers Association (ABA) recently sent a letter imploring top federal financial regulators to provide explicit guidance on how the banking sector can lawfully service hemp businesses.

The letter—sent to the heads of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Treasury’s Comptroller of the Currency and Financial Crimes Enforcement Network (FinCEN) last week—describes ongoing uncertainty among financial institutions since hemp and its derivatives were federally legalized under the 2018 Farm Bill.

ABA Executive Vice President Virginia O’Neill wrote that “banks remain uncertain about the degree to which they can serve hemp-related companies, and the compliance and reporting requirements that such relationships require.”

“Although other federal regulators have issued helpful clarifications regarding hemp production, banks are subject to a complex set of legal requirements and regulatory expectations and require specific guidance to ensure they are acting appropriately,” she wrote. “Furthermore, the unique nature of hemp as a low-THC strain of marijuana, which remains a Schedule I substance under the [Controlled Substances Act], means banks must have a reliable mechanism to distinguish legal hemp from federally illegal marijuana with extreme confidence.”

There have been other attempts to elicit clarification from federal regulators in the months since hemp was legalized.

Rep. Andy Barr (R-KY) asked FDIC Chair Jelena McWilliams about the issue in May, telling her that he has constituents who’ve told him their access to financial services has “actually deteriorated since we descheduled industrial hemp” and requesting further guidance.

In a similar letter to federal regulators this month, Sen. Michael Bennet (D-CO) also complained about the continued lack of access to banking services for hemp producers. The 2020 Democratic presidential candidate said he hopes the agencies “can work expeditiously and in a coordinated manner to issue guidance describing how financial institutions can offer financial products and services to hemp formers and processors.”

But so far, the closest the regulators have come to assuaging the concerns of banks is a statement from a top Federal Reserve official who said during a Senate hearing earlier this month that “hemp is not an illegal crop.”

ABA said it appreciated the comment but that “a formalized statement from the agencies is necessary to enable banking services for the hemp industry on a meaningful scale.” O’Neill requested confirmation of five specific areas of interest.

“Specifically, we ask that the agencies confirm that:

“—hemp is no longer a controlled substance, effective as of the enactment of the 2018 Farm Bill, and therefore proceeds derived from hemp businesses are not unlawful, and handling those proceeds does not constitute money laundering;

“—banks do not need to file suspicious activity reports solely because a transaction relates to hemp or hemp-derived products;

“—banks can rely on a license issued by a state department of agriculture or the U.S. Department of Agriculture to confirm that a hemp producer is operating in compliance with state and federal law, and that their product qualifies as ‘hemp’ as defined in the 2018 Farm Bill;

“—in accordance with United States Department of Agriculture (USDA) guidance, banks can serve hemp cultivators and processors operating subject to state pilot programs under the 2014 Farm Bill, effective immediately; and

“—as soon as USDA finalizes its regulations related to industrial hemp, banks will be able to serve hemp cultivators and processors operating under state approved plans or direct federal licenses.”

Further, ABA asked for specific guidance as it relates to hemp-derived CBD and information about “the appropriate procedures for sourcing those products back to legal cultivators and processors.”

While the association recognized that “this is an evolving area of law and regulation” and that questions remained among federal regulators about the implementation of hemp legalization, it said that “there are steps that can be taken now to help clarify legal and regulatory expectations for banks in the current environment.”

The letter focused exclusively on hemp and its derivatives, but there’s a simultaneous conversation going on nationally about how financial institutions can work with state-legal marijuana businesses. Bipartisan legislation that would protect banks that service such businesses has the support of all 50 individual state bankers associations.

Read the full ABA letter on hemp banking below:

Regulators Hemp 062119 by on Scribd

Senator Urges FDA To Speed Up CBD Regulations

Photo courtesy of Brendan Cleak.

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Congressional Committee Asks JUUL For Documents On Marijuana Partnerships

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Is the e-cigarette company JUUL planning on expanding its stake in the marijuana industry?

That’s one question the chair of a congressional subcommittee asked the company in a letter concerning JUUL’s role in the “youth e-cigarette epidemic” earlier this month.

Lawmakers have frequently criticized JUUL for making products—specifically flavored e-cigarette cartridges—that allegedly appeal to young people at a time when rates of cigarette use are steadily declining. But while JUUL was developed by the cannabis vaporizer company PAX, it hasn’t announced plans to further partner with marijuana companies.

Rep. Raja Krishnamoorthi (D-IL), who chairs the House Subcommittee on Economic and Consumer Policy, apparently sees the possibility on the horizon, though.

In a letter sent to JUUL on June 7, the congressman said his panel was investigating youth e-cigarette usage and, specifically, how the company’s marketing tactics might be exacerbating the issue. He requested documents on everything from clinical trials on how JUUL devices divert people away from traditional cigarettes to communications on the company’s rationale for the nicotine concentration of JUUL pods.

Tucked within the extensive request is a question about potential marijuana partnerships. Krishnamoorthi asked for:

“All documents, including memoranda and communications, referring or relating to proposals, plans, and/or intended partnerships or collaborations between JUUL and any cannabis-related companies, including but not limited to Cronos Group.”

It’s not clear where the Cronos-specific mention comes from, but the company has perviously caught the interest of the tobacco industry. The maker of Marlboro cigarettes, Altria Group, invested almost $2 billion in the Canada-based cannabis company in December. Two weeks later, Altria invested $13 billion in JUUL.

Marijuana Moment reached out to JUUL, Cronos and Krishnamoorthi’s office for comment, but representatives did not respond by the time of publication.

If a partnership does emerge, it would likely be met with some controversy, as opponents and proponents of marijuana reform alike have long expressed concern that the tobacco industry would take over the cannabis market and commercialize it in a way that mirrors how it peddled cigarettes.

Of course, given that tobacco use is declining and tobacco companies generally have the infrastructure that would make a pivot to cannabis relatively simple, such a partnership would not be especially surprising.

Senate Majority Leader Mitch McConnell (R-KY) has made the case several times that tobacco farmers in his state could leverage the federal legalization of industrial hemp and its derivatives by growing the crop to offset profit losses from declining tobacco sales.

Read Rep. Krishnamoorthi’s full letter to JUUL below:

2019-06-07.Krishnamoorthi t… by on Scribd

Americans Want CBD Available Over-The-Counter, Poll Finds

Photo courtesy of Wikimedia.

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