Intellectual Property Protection for Cannabis Companies
By: Neil Braslow, Esq.
Twenty-eight states as well as the District of Columbia now have some form of legalized marijuana after the November 2016 election. As of November 9, 2016, the use of both recreational and medicinal marijuana has been entirely legalized in the states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington. Additionally, some states have decriminalized the possession of small amounts of marijuana, and others have passed medical marijuana laws allowing for limited use of cannabis. To say that the legal cannabis industry is growing is an understatement. Producers, suppliers, retailers, promoters and service providers are all experiencing a surge in economic development. With the marijuana industry flourishing, companies associated with cannabis need to ensure proper legal compliance and should strongly consider protecting their intellectual property (IP).
Typically, since marijuana is a Schedule 1 controlled substance, companies involved in the cannabis industry have found it difficult to secure federal trademark protection. The Controlled Substances Act of 1970 listing marijuana under its highest classification (Schedule 1) is a primary reason why marijuana remains illegal at the federal level. A Schedule 1 drug, as defined by the Drug Enforcement Administration, is a substance that has a high potential of being abused by its users and has no acceptable medical purpose. Since producing and selling marijuana is illegal under federal law, the United States Patent and Trademark Office has refused to grant trademark registrations to businesses involved in this enterprise.
Given that federal trademark protection is generally unavailable, companies operating in states that have legalized the activity can often pursue state-level trademark protection as a viable, alternative option. State trademark applications typically cost less than $100 in filing fees and can be extremely helpful to cannabis companies seeking to obtain some level of brand protection. The primary benefit of a state trademark registration is that it notifies the public that you are the owner of the trademark. Notably, state-level trademark protection is not an option in California since the state voluntarily complies with a rule to not issue trademarks to companies that violate the Controlled Substances Act, which includes companies related to the marijuana industry.
Another potential option for brand name protection is reliance on common law trademark rights. When a company has been using a mark in commerce and through association with its product, it can claim ownership rights through use. Thus, if someone was able to obtain a federal registration for the same or similar mark, they would be unable to stop you from using your brand name because of your common law trademark rights. Common law trademark rights can protect a brand name wherever it is used. Therefore, establishing common law rights can be important in states where you do not have a state-level registration, or where such registration is unavailable for some reason. One of the best ways to establish your common law rights is to document every sale and every transaction that includes the brand name, or product that you want to protect, along with dates and relevant information. This will provide you with the ability to support your claim to the mark if and when a dispute arises.
As the cannabis industry continues to grow and regulations continue to change, companies should seek trademarks and brands that are unique and stand apart. Easy to identify names and marks will help in defending against potential competitors. In addition, a unique name and mark could help in preventing costly legal battles over IP rights.
Another potential option for businesses looking to protect their IP is through copyright protection. Business operators can consider copyright registration for any expressive works including websites, computer code, advertising material, and documents such as blog posts. Copyright registration is also available for protection of logos, as long as originality exists in the creation of the logo. Unlike with federal trademark registrations, the Controlled Substances Act would not be a bar to a copyright registration. The registration of a logo with the Copyright Office would have the added benefit of additional enforcement rights and a potential path to statutory damages in the event competitors infringed on the logo. Attempting to enforce copyrights without a prior registration eliminates any potential award of statutory damages, and forces the claimant to prove actual losses. This can often render an enforcement action economically impractical.
Legal cannabis sales jumped 17% to $5.4 billion in 2015, and they will grow by a stunning 25% in 2016 reaching $6.7 billion in total U.S. sales. The numbers are shocking considering that the industry is relatively brand new, and that the first recreational dispensaries opened for business in Colorado only two years ago. With industry growth at such an incredible pace, entrepreneurs and businesses will be looking to enter into the market to get a piece of the potentially lucrative profits. As the industry begins to become more crowded across the U.S. in the coming months, it will be critical to ensure that your business is in proper legal compliance, and that your IP is fully and properly protected. While federal trademark protection is typically prohibited for marijuana related businesses and marks, gaining some level of protection through copyright law, state trademark registrations, and common law use will be essential to protect your company’s intangible assets.
Walters Law Group, represents clients involved in all facets of the cannabis industry. Nothing in the foregoing article is intended as legal advice. Neil Braslow, Esq. can be reached via email: neil[at]firstamendment.com, or toll free: 800.530.8137.