IP And The 4 Lanes Of Cannabis Commerce

This article was originally published on Hoban Law Group, and appears here with permission.

In a recent article, Bob Hoban observed that cannabis commerce can be divided among 4 commercial lanes

• Recreational cannabis
  • High-end “craft” strains
  • Mass-marketed generic products
• Pharmaceuticals
• Wellness and food products (CPGs – edibles, cosmetics & nutraceuticals)
• Industrial hemp, which can be further divided into
  • Fuels
  • Plastics, Textiles, Paper, and Construction materials
  • Biomass for cannabinoid extraction
  • Nutritional products (hemp oil an hemp seed)

This series of articles will first introduce basic concepts of intellectual property (IP) – the collective term encompassing patents, trade secrets, trademarks, and copyrights – and then discuss the current state of IP within each of these lanes, with an eye towards helping cannabis business people understand how IP can benefit their bottom line.  

This first article will provide an overview of the four basic types of IP tools, including the prerequisites for securing IP rights and what protections they provide.  Also covered are some basic considerations that go into crafting intellectual property in any industry, the importance of identifying and mitigating IP-related risks, and the ways in which IP rights can be monetized.

Cannabis Commerce Overview

There are 4 basic types of IP rights: trademarks, copyrights, patents, and trade secrets.  These tools differ with respect to the nature of the rights, how they are created, the process for securing government protections, how they can be used as part of an integrated IP strategy to provide competitive advantages in the marketplace, and how they can be monetized.

All IP rights share the common characteristic of being territorial in nature.  While there are some devices that make this process less costly both procedurally and monetarily, it is the case that one must secure IP rights in all countries in which protection is desired.  A corollary of this territoriality is that clients must be represented by practitioners who are licensed in the country where IP protection is being sought – an exception exists in cases of filing patent applications under the Patent Cooperation Treaty and, trademark applications under the Madrid Protocol and copyrights under the Berne Convention.  In such cases, clients need only retain a practitioner licensed in the country where the application will be filed.

Cannabis Commerce: Trademark

Trademark rights protect branding – words, symbols, or combinations of the two that are used in combination connection with the sales and marketing of goods and services and which function as a means of identifying their source of the goods or services.  Trademark rights, when registered, provide for the exclusive use of the mark in combination with particular identified goods and services.  Trademarks serve the dual purpose of protecting the owner’s property rights in the mark and also in providing consumer protection against persons attempting to pass off counterfeit goods.   Trademark rights are available if you have used your mark on goods or services in commerce, and even if you have not yet used the mark on goods or services but you have an intent to use the mark on goods or services.  

“Common law” trademark rights are created automatically upon the first sale.  Registration of the trademark(s) can provide additional enforcement tools as well as assist in facilitating proof of infringement and providing enhanced damages in cases where infringement is proven.

In the US, registration can be obtained at the state or federal level.  Federal registration provides the advantages of nation-wide protection despite geographically limited sales, access to federal courts and border enforcement agencies, and enhanced damages in cases where intentional infringement is demonstrated.  However, federal registration is not available for marks that are used in combination with the sales of goods or services that are illegal under federal law.  State registration can provide a workaround in some cases, although in most jurisdictions federal illegality poses a hurdle to registration.  An alternative is to obtain registration on related products that are legal under federal law while awaiting federal legalization.

Cannabis Commerce: Patents

Patents protect technology – inventions (specifically, processes, machines, compositions of matter, articles of manufacture and improvements thereon) which are new, “non-obvious” and useful.  Patent rights are provided for in the United States Constitution and reflect an underlying policy of incentivizing innovation – in exchange for disclosing how to make and use their inventions, inventors are granted the right to prevent others from making, using, and selling their inventions.  Notably, patents do NOT give the absolute right to make, use, or sell one’s own invention – in some cases, 3rd party rights may intervene.  If an inventor owns the patent rights to a four-legged table, she must still obtain authorization from (and usually, pay royalties to) the owner of the patent on a 3 legged table if she wishes to market her 4 legged versions.

Unlike trademarks, which are created automatically are recognized by common law, patent rights must be applied for, and are granted after a process of evaluation (“examination” and “prosecution”) if the Examiner finds that all prerequisites of patentability, including the adequacy of how the invention is described and claimed in the application, are met.  It is critical that a patent application is filed BEFORE publicly disclosing or offering the invention for sale – otherwise, the rights are forfeited.  In a handful of countries, including the USUnited States, Canada, Australia, Japan, Argentina, Mexico, and a few others, the law provides for a “grace period” during which one can still file an application after public disclosure.  

Once an application is filed, it is “examined” by a Patent Examiner, who evaluates the application in the context of what was known in the art prior to the applications’ priority date and determines whether the invention as it is claimed is novel and non-obvious, as well as ensuring that the application’s disclosure is adequate and the claims conform to statutory requirements.  If all prerequisites are satisfied, the Examiner “allows” the claims, and the application proceeds to “issue” as a US patent.  Post-grant, the claims scope and/or validity of the application may be challenged by 3rd third parties through “inter partes” post-grant proceedings at the USPTOUnited States Patent and Trademark Office, or via litigation brought in federal court.

Patent rights last for a period of 20 years from the date of earliest filing and cannot be renewed; however, creative drafting and product development can effectively “evergreen” patent rights to provide an extended period of market exclusivity.  

Cannabis Commerce: Copyrights

Copyrights protect original creative works that are fixed in a tangible medium of expression.  They cover a wide variety of works, including writings, pictures, musical works, choreography, motion pictures, and even compilations such as phone books.  Like trademarks, copyrights are created automatically upon fixation of the work.  Their scope of a copyright is generally narrow, and successful claims for infringement requires showing that the allegedly infringing works were s were created with knowledge of the pre-existing one.  Like trademarks, the registration process provides enhanced enforcement tools, however unlike trademarks, copyright applications are not examined – only if they are litigated with the matter of originality be investigated.

Cannabis Commerce: Trade Secrets

Finally, Trade secrets protect confidential information that provides a competitive advantage in the marketplace and therefore encompasses a wide variety of subject matter that extends well beyond technology, including to things like customer lists.  Trade secret rights are neither automatic nor bestowed by governmental agencies.  Instead, they trade secret rights are protected through contractual provisions that impose a duty of confidentiality and best practices designed to ensure the information is kept confidential, such as siloing information, restricting access, and segregating different parts of industrial processes to protected locations.  As they are based in contracts, trade secrets only apply to signatories – 3rd third parties who independently develop the information are not bound absent a showing that they had access to the information and intentionally misappropriated it for their own financial gain benefit.

Cannabis Commerce: Monetization

IP rights increase corporate valuation.  Beyond providing market exclusivity, they can be monetized by means of licensing or outright sales.  Therefore, Cannabis entrepreneurs are well-advised to explore the possibility of securing protection for their technology, confidential information, and branding with a licensed IP attorney, and to do so proactively, especially in cases of potentially patentable technology or registerable brand identity, in order to avoid forfeiting rights or being “scooped” by competitors.  Monetization can be optimized by proactively developing and implementing an overall IP strategy that leads to a robust, expansive IP portfolio that not only provides exclusivity for a businesses own products, but also creates barriers to entry and extends exclusivity as long as possible.  Ideally, an IP portfolio can create opportunities for revenue generation without compromising competitive position.

Cannabis Commerce: IP Strategy

A number of considerations enter in to formulating an IP strategy, including but not limited to:

• The relative size of the company with respect to market presence and budget,
• The overall business strategy of the organization, including  product development and marketing goals,
• The nature and extent of any existing IP portfolio, and
• The nature of the business, including but not limited to
  • the degree to which it is technology-driven vs. marketing-driven,
  • the length of the product development lifecycle,
  • the nature and extent of any competitive advantages relative to others in the industry, and
  • barriers to entry with respect to particular products and the business as a whole.

Read the original Article on Hoban Law Group

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