Intellectual Property

Blowing Smoke? Some IP Considerations For The Cannabis Industry

The cannabis industry may be rolling along, but evolution of intellectual property rights in this industry are developing at a somewhat different pace.

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For a product that remains illegal federally, the cannabis industry in the United States remains a rapidly budding industry.  Forgive the pun, but the reference is justified — this emerging industry took in nearly $9 billion in sales in 2017, despite recreational marijuana use being legal in only 11 states and the District of Columbia (although medical marijuana use is legal in 34 states).  Oddly, this growth is not just limited to marijuana itself — as a result of the nationwide legalization of industrial hemp production through removal of hemp from federal prohibition under the Controlled Substances Act of 1970, the growth of cannabidiol (or CBD) oil derived from such production has skyrocketed.  Although CBD can also be derived from marijuana, this non-psychoactive compound has enjoyed such growth ostensibly for its health benefits regarding anxiety, depression, and other ailments.  The cannabis (and by extension, hemp) industry may be rolling along, but evolution of intellectual property rights in this industry are developing at a somewhat different pace.

Like any other industry, smart entrepreneurs should be thinking about appropriate intellectual property protections to protect their innovation.  That said, this industry is not as  straightforward to navigate as, say, the technology industry due to the nature of the product and different state regulations that come into play.  Not only must a company safely navigate each state’s regulatory regime, but any intellectual property strategy must account for such accommodation.  At a minimum, companies in this space are engaged in a balancing act between ensuring appropriate intellectual property protection without running afoul of a state’s regulatory requirements.

This balance comes with some significant challenges.  First, federal trademark protection (and all the benefits that come with a federal registration) is likely not available for marijuana products that remain illegal federally.  Unfortunately, marijuana remains a Schedule I drug under the Controlled Substances Act, 21 U.S.C. Section 812 et seq.  Being an illegal substance federally, its sale in interstate commerce is prohibited, thereby disqualifying such products from federal trademark registration because there can be no “use in commerce” as regulated by Congress and as required for federal trademark registration.  Thankfully, this prohibition does not extend to most CBD oil products because these products generally have less than 0.5 percent of tetrahydrocannabinol, or “THC” (the principal psychoactive cannabinoid in marijuana that induces the “high” associated with marijuana use), and are not illegal.  Further, state trademark registration is likely available for trademarks in states that permit the recreational or medical use of marijuana; however, such registration (and administration) would be a challenge in each state where the company is doing business. These challenges extend to any licensing program that seeks to license such rights throughout the United States.

Another challenge is in the area of patent protection.  Similar to the issues presented by the illegality of marijuana federally, can a patent for “cannabis extracts and methods of preparing and using same” be enforced?  This very question is currently being litigated in federal court in Colorado, in United Cannabis Corp. v. Pure Hemp Collective Inc., Case No. 1:18-cv-01922-NYW (D.Colo).  In this case, plaintiff United Cannabis Corporation (UCANN) is claiming that Pure Hemp Collective is infringing UCANN’s Patent No.9,730,911 which “claims various liquid formulations of highly enriched extracts of plant cannabinoids,” which includes formulations where 95 percent of the total cannabinoids is the non-psychoactive cannabidiol (CBD).  As far as I know, this is the first lawsuit involving patent infringement of a cannabis-related product — given the breadth of the claims and the fact that cannabis remains illegal federally, there is a legitimate question as to how (or even whether) the court will hear the case.  Any holding in this case will be closely watched, as it will help shape the approach to patent protection in the cannabis industry.  As a result, companies currently weighing whether to proceed with such protection should tread carefully.

As you can see, the above has only briefly touched upon some of the issues presented about what is (or may be) protectable.  What are companies in this space to do? The most important thing such companies entering this market can do is do their homework.  By that, I mean that a thorough due diligence should be conducted to assess the nature of the marketplace, competitors, and competitor intellectual property with qualified intellectual property counsel.  I can’t stress this point enough — when faced with this kind of landscape, it is essential that your company (or client) understand the landscape as best as possible. I can assure you, if you are not doing it, your competitors are, and that is not a position in which your company (or client) should find itself. Like any other emerging industry, companies entering the cannabis market have their work cut out for them, so take the time to assess the landscape, cultivate the necessary intellectual property rights, and reap the harvest of such efforts.  Anything less, and your company (or client) may just find itself blowing smoke.

Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.

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