How do you protect intellectual property rights in an insanely lucrative, nearly legal ingredient poised to detonate the consumer packaged goods (CPGs) industry?
While the Wall Street Journal reports that cannabis 2020’s domestic sales exceeded $20 billion, and despite being legal in 36 states, marijuana remains 100% federally illegal under the Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. Sections 801, Et. Seq (1970) (Controlled Substance Act).
With federal legalization looming, and a dazzling array of “infused edibles” (e.g., baked goods, chocolates, candies, beverages, butters, syrups and vinegars) on the verge of dominating the shelves, grasping cannabis complex regulatory landscape and patents, trade secrets and federal and state trademarks’ intricacies is essential to fortifying assets, ensuring growth and litigation avoidance.
The Controlled Substance Act currently lists marijuana next to heroin as a Schedule I controlled substance having “a high potential for abuse” and for which there’s “no currently accepted medical use in treatment” and “a lack of accepted safety for use” “under medical supervision.” The Controlled Substance Act prohibits marijuana’s cultivation, distribution, dispensation and possession and, pursuant to the U.S. Constitution’s supremacy clause, state laws conflicting with federal law are generally preempted and void. U.S. Const., Art. VI, cl. 2; Wickard v. Filburn, 317 U.S. 111, 124 (1942) (”No form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress”).
A fast-growing, sustainable, and inexpensively produced plant, hemp is a variety of cannabis sativa L. containing less than 0.3% plant chemical Delta-9 THC. Hemp yields more than 25,000 oil and fibrous products including cannabidol (CBD), which offers broad health and wellness uses, serves as a food additive and is contained in many beauty items.
On Dec. 20, 2018, the Agriculture Improvement Act of 2018 (Farm Bill) was enacted legalizing hemp and its derivatives and removing plant cannabis sativa L. containing no more than 0.3% Delta-9 THC on a dry-weight basis from the Controlled Substances Act and the Drug Enforcement Administration’s purview.
Even after being erased from the Controlled Substance Act’s “marijuana” definition, certain hemp-derived products may still violate the Food and Drug Administration (FDA) enforced Federal Food, Drug, and Cosmetic Act, 21 U.S.C. Section 301 Et Seq. (FD&C Act) (i.e., hemp-derived CBD food, beverage, and dietary supplements used in human and animal products).
However, also in December 2018, the FDA “generally recognized as safe” hulled hemp seed, hemp seed protein powder and hemp seed oil indicating that those products may legally be marketed in human foods.
Because the Controlled Substance Act prevents cannabis from being sold outside of each respective legalized-marijuana state and, thus, no “interstate cannabis commerce” can occur, state regulators like Washington state’s Liquor and Cannabis Board (LCB), and not federal agencies like the FDA, regulate marijuana-related businesses (i.e., those growing, processing, selling or transporting cannabis).
Whether deemed “medical” (purchasable only with state-issued card to treat resident’s statutorily defined “covered medical condition”) or adult-use (purchasable by anyone over 21 from any state with a valid identification), cannabis takes four forms: “flower” that is smoked; “oils” ingested by vaporizing; “concentrates” only consumable after being heated to a high temperature; and “infused” products ranging from eye drops to “edibles.” With few exceptions, medical and adult-use cannabis items are identical and only delineated by their purchasers: medical card patients or adult use consumers.
In Washington, permissible “marijuana infused edibles” are defined by the LCB’s as “low hazard foods” not supporting “bacterial or toxigenic growth” like nonrefrigerated baked goods (cookies, brownies, fruit pies and tarts), chocolates candies and sugar or syrup-based confections (molded chocolates, fruit rolls, roasted-coated nuts, and nonbaked bars or granola products), flavored, carbonated and lemonade style beverages, dry mixes (coffee granules, leaf tea, soup mixes, beverage mixes and seasonings), jams, jellies, roasted nut butters, honey and syrups, and vinegars.
Conversely, the LCB prohibits commercial sale of “potentially hazardous” cannabis-infused foods including those which: must be temperature controlled (frozen, refrigerated or hot-holding); require acidification to assure food safety (ready-to-drink tea and barbecue sauce); must be retorted or pasteurized to assure food safety; dairy products (butter, cheese, ice cream or milk); fruit or vegetable juices (except shelf-stable concentrates); oils and vegetable butters; pies containing egg (pumpkin or custard); and dried or cured meats.
While federal trademarks are denied to all cannabis and many hemp CPGs, most other intellectual property protections are available.
First, if sufficiently documented, trade secrets can be protected. Trade secrets encompass internal data, formulations, scientific data and business know-how but require documented and enforced “internal policies” like employment, nondisclosure or distribution agreements.
Second, as long as not running afoul of the FD&C Act, patent protection may be secured for cannabis and hemp derived CPGs. Patents protect inventions (manufacturing methods, formulations, delivery devices, software and packaging) and require novelty and nonobviousness (i.e., no prior third-party sales or publications describing invention).
Third, in states with legalized cannabis, both Common Law and State Trademark registrations may be available. A trademark may be a logo, word mark, or a special and well-known product design, is protectable at both the state and federal level, and may arise under common law through usage (i.e., if first use can be proven, the first user typically enjoys superior rights). Although state level trademark registration requirements vary, most deem registration as a “publishing” method which creates a common law granted trademark right.
Fourth, although federal trademark registration for cannabis and CBD infused products is still unavailable, federal trademark registration is obtainable for certain Farm Bill compliant hemp products like skin care preparations and cosmetics. Federal trademark registration is achieved by filing an application with the U.S. Patent and Trademark Office (USPTO), which prohibits granting a trademark registration for federally illegal material like cannabis. See 15 USC Section 1051(a)&(b); In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016).
However, federal trademark law does not prevent filing a trademark application; it just restricts the USPTO from registering the mark. Thus, filing of an application forms a “publication” creating an official record of applicant’s attempt to assert rights under the trademark law and indicates either use or intention to use the mark.
Fifth, while the actual CPG may be ineligible, certain legal cannabis-related activities may achieve federal trademark registration including clothing featuring a cannabis-related trademark (T-shirts and hats) and cannabis and CBD related content like educational, news, blogs and entertainment (podcasts).
Thus, if securing a federal trademark registration for legal activities, those rights may preserve future product and services under the same registered mark for “related” goods and services that, while unlawful as of application’s filing, later become lawful.
The greatest challenge to MRBs’ intellectual property rights stems from mainstream CPG companies. For years the Hershey Co. has been filing trademark-violation lawsuits against cannabis companies, in 2020 the makers of Nerds candy filed a trademark infringement action against a California edibles maker, and, in June 2021, cannabis e-cigarette company Capna Intellectual was barred from using a product logo resembling Kool cigarette’s brand image.
Specifically, in December 2020, Kool’s parent company, ITG Brands, sent a cease-and-desist letter to Capna (which does business as Bloom Brands) after learning about Bloom’s trademark application and, in January 2021, sued on a trademark dilution claim related to its “KOOL” brand which uses “KOOL OOs” while Capna’s branding uses “BLOOM OOs.”
The U.S. District Court for the Central District of California ruled that Capna cannot use the logo “or any other marking containing interlocking OOs or circles” and ordered it to cease selling the “banned logo materials,” notify the public and its retail distributors of the injunction apprising that the “banned logo materials” may be exchanged for new ones, and destroy all “banned logo materials” by the end of the year.
Thus, while filing an application creates a measure of intellectual property protection, marijuana-related business must keep mindful of fundamental trademark infringement criteria: “similarity of marks:” “high level of public recognition:” “continuous and substantial promotion:” “proximity of the goods sold:” “similarity in marketing channels used:” “type of goods and the degree of care likely to be exercised by purchasers:” evidence of actual confusion:” “intent in selecting the mark” and “likelihood of expansion into other markets.”
Reprinted with permission from the August 26,2021 edition of the Legal Intelligencer © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].
2019 National Law Journal “Finance, Banking, & Capital Markets Trailblazer” award winner, Steve Schain is Senior Counsel at Smart-Counsel, LLC, a 100% female owned boutique Cannabis law firm. Steve represents entities, governments and individuals in litigation, regulation and compliance, financial services, license applications and entity formation. Reach Steve at [email protected]
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