IP Law News

Cannabis Industry Seeks Clarity in Intellectual Property Haze (Corrected)

July 27, 2018, 9:30 AMUpdated: July 31, 2018, 5:55 PM

U.S. cannabis businesses are racing to lay claim to patent and trademark protections, even though they lack federal intellectual property rights.

The U.S. Patent and Trademark Office doesn’t grant federal trademark registrations on products involving marijuana, which is illegal under federal law. The federal ban doesn’t impact the grant of cannabis-related patents.

The PTO has issued more than 500 cannabis-related patents since 2000, according to Bloomberg Law data. The patents broadly cover marijuana-related plant strains, chemical formulations, medical treatments, and devices to make and consume cannabis products.

The federal illegality of marijuana means the industry lacks clarity over how their intellectual property rights will hold up if challenged in federal court.

Cannabis businesses have creatively sought out state-level trademark protections when possible, and navigated a web of disparate state laws to safeguard their rights, attorneys, industry executives and in-house counsel told Bloomberg Law.

“We believe not only state IP laws but also state competitive fairness and competition laws are very good avenues in the meantime before the federal question gets answered,” James Whitcomb, chief financial officer of Surterra Holdings, which sells cannabis-based medical treatments in Florida and Texas, said.

Legalization Fever Pitch

The cannabis legalization debate could reach a fever pitch in many state elections later this year, Bloomberg Intelligence analyst Kenneth Shea said. Thirty U.S. states and the District of Columbia already allow some form of legal cannabis sales.

Michigan has a ballot vote for legalizing recreational marijuana and Utah has a ballot measure to legalize medical marijuana set for November.

Legal U.S. cannabis sales are expected to reach almost $10 billion in 2018 and hit nearly $23 billion in 2025, according to Bloomberg Intelligence data sourced from cannabis industry intelligence firm New Frontier Data.

Robust federal trademark and patent rights instead of a patchwork of state protections could help the fast-growing industry expand further and fend off global competition, Shea said.

U.S. cannabis businesses should take IP rights at the domestic and global level seriously, Shabnam Malek, a partner at Brand & Branch LLP and co-founder of the National Cannabis Bar Association, said.

They “should have IP enforcement programs and set themselves up for the oncoming decriminalization and possible legalization on a federal level,” she told Bloomberg Law.

Trademark Workarounds

Companies such as Acreage Holdings, which cultivates and sells cannabis products in 12 U.S. states, depends on state trademark protection to operate, Acreage’s general counsel, James Doherty, told Bloomberg Law. Former U.S. House speaker John Boehner (R.-Ohio) is on Acreage’s advisory board.

Medical cannabis business Canndescent has 10 registered federal trademarks, patent and trademark office records show. Those trademarks only cover secondary products, such as smoking accessories and apparel, its chief executive officer Adrian Sedlin said.

Canndescent’s cannabis formulations, which Sedlin says make up the company’s bread-and-butter sales, can’t register U.S. trademarks. He said he worries if someone in Canada, which is on track to legalize marijuana in mid-October, may snag a trademark on “Canndescent.”

Cannabis businesses also are entering co-branding partnerships with trademark-holding companies, Shea said. A cannabis company can team up with a craft brewing company such as Heineken unit Lagunitas to market pot-based beverages, for example. “You can piggyback off someone else,” he said.

But businesses have to be careful when using trademarks for edible products, Brand & Branch’s Malek said. A company that sells chocolate with cannabis alongside chocolate without cannabis, for example, shouldn’t stick to the same trademark on both for consumer safety reasons, she said.

“The deeper problem is that we don’t even know how a proceeding might look in federal district court when a cannabis company is a plaintiff and if they’re relying on their rights having to do with their cannabis goods and service,” Malek said. “That is ambiguous and possibly absent for us and that makes enforcement and efforts at consumer protection complicated in this industry.”

PTO Grants of Cannabis-Related Patents

The U.S. patent office approves cannabis-related patents as long as they are new and useful.

The patent office faces some challenges when reviewing a cannabis patent applications, attorneys say. There is limited information available on prior inventions and already-known information when it comes to the emerging cannabis industry, Cynthia Hardman, a partner at Goodwin Proctor LLP told Bloomberg Law.

By comparison, with a typical pharmaceutical patent, a patent examiner can comb through databases on previous inventions recorded in scientific and medical journals, prior patents, and other sources.

“The patent office may issue patents that have a hidden invalidity problem,” Hardman said. “That, in fact, the subject-matter was known and in use before the patent application,” she said, referring to cannabis-related inventions.

Cannabis-related patent applications with claims to a marijuana plant are treated the same way as any other plant, patent office spokesman Paul Fucito said.

“No special statutory requirement is applied for medical use of cannabis,” Fucito said. “The application is treated like any other application.”

Legal experts also are concerned that the patent office may be granting overly broad patents for cannabis. A patent with large percentage of cannabinoids and oils that give cannabis its distinctive smell may cover a variety of strains that others may want to patent, Doug Fischer, chief legal officer of the National Association of Cannabis Businesses, said.

“If it’s too broad it will stifle competition,” Fischer said. His association is a self-regulatory group that creates voluntary standards for the cannabis industry, such as those for advertising and financial transparency.

“In the pharmaceutical space, we went through a generation of overbroad patents that resulted in a great deal of litigation, and my hope is we’ve learned from that,” Rep. Matt Gaetz (R-Fla.) told Bloomberg Law. Gaetz introduced a bill in April that would increase the number of federally approved cannabis manufacturers for medical marijuana research.

State-by-State Counseling

Counseling cannabis clients is a challenge, IP attorneys say, because the federal ban limits enforcement of cannabis trademarks and patents, and disparate state laws can snarl litigation across state lines.

Different U.S. states have separate laws on who can own a license to cultivate or manufacture cannabis, Brand & Branch LLP partner Amanda Conley told Bloomberg Law. “It really makes state-by-state licensing feel like a global licensing project, where it almost feels like different countries.”

“What we’re seeing more of right now is mainstream companies coming after cannabis companies for trademark infringement,” she said, citing Hershey Co.'s recent spate of trademark infringement lawsuits against cannabis edible product makers.

Goodwin Procter’s Hardman said she has been noticing an uptick in patenting activity in the last couple of years, signaling that federal litigation is “percolating on the horizon.” But cannabis companies will hesitate to admit details on their activities, legal in certain states but illegal under federal law, in court as evidence, she said.

Cannabis Challenge Before PTAB

The patent office’s administrative review board has said it will hear Insys Development Co. Inc.'s challenge to GW Pharma Ltd.'s patent on the use of cannabidiol to treat seizures.

Both companies make treatments using chemical cannabinoids found in marijuana. The decision would clarify how cannabis patents can be enforced at the Patent Trial and Appeal Board, which hears patent challenges.

Cannabis company executives say they wanted to be treated like any other company in the U.S when it comes to intellectual property rights.

“The concern is that we, like every other cannabis company in the U.S., cannot access at this point full IP and trademark protection to the extent that almost every other company can, Acreage’s Doherty said. “That being said, we do take efforts in state-by-state protections.”

(Corrects name of law firm to Brand & Branch LLP in the 11th, 17th and 29th paragraphs)

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bloomberglaw.com

To contact the editor responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com

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