Upcoming Legalization of Recreational Marijuana in New Jersey
On November 7, Democrat Phil Murphy overwhelmingly won the race to be the next governor of New Jersey. During his campaign and after his election, Murphy has made it clear that the legalization of recreational marijuana is a priority of his administration. Murphy is pushing for legalization for a number of reasons, foremost among them that he is relying upon the new industry to generate $300 million in income for the government, and to decrease incarceration rates for minor marijuana offenses, which overwhelmingly impact minorities.
A draft bill is already circulating in the New Jersey State Senate, and it is possible that Murphy will sign the bill into law within his first 100 days in office. Per the draft bill, within one year of its enactment a set of rules for the new industry and the application process for the various licenses will be distributed. A new division will be created to manage the application process for licenses, and then oversee the parties that are granted such licenses. The draft bill further stipulates that any applications for a license must be reviewed and decided upon within 3 months of receipt by the division. Add it all up, and it is possible that the first recreational marijuana dispensaries could be open in New Jersey within two years. When that happens, a billion dollar industry will spring from nothing, and there will be a wealth of new businesses and innovations that will require intellectual property protection.
Is There A Patent Troll Lurking in the Cannabis Field?
Before discussing the specific wrinkles of intellectual property protection of marijuana and its related products, there is another story emerging that underlines the vast amounts of money being invested in the cannabis industry, and how important intellectual property protection can be for the future of the entire industry. A mysterious company, BioTech Institute LLC, has applied for a number of patents for strains of marijuana, which is permissible under federal patent law. The concern among the legal cannabis industry is that BioTech Institute is going to evolve into a patent troll—a company that tries to extort money out of other companies by using its patents as a sword when it has no intention of actively selling the invention covered by the patent. In order to obtain a patent, it is necessary for the invention to be novel, and so numerous parties, including the Cannabis Evolution Project, are trying to counteract BioTech’s efforts by compiling genetic databases of different strains of cannabis. These databases would demonstrate that many strains preexisted BioTech’s purported development of its strains, thereby showing that they are not, in fact, novel. The amount of secrecy surrounding BioTech does not help people’s opinion of its intentions. An enterprising GQ reporter attempted to track down exactly who is behind the company, and it appears to be an individual named Shawn Sedaghat who sold a stake in a cosmetics company for over $250 million. Time will tell whether BioTech’s intention are pure, and if not, whether the Cannabis Evolution Project can invalidate BioTech’s patents.
An Overview of Issues Relating to the IP Protection of Marijuana and Its Related Products
There are many strains of marijuana that have developed over the years that it was completely illegal, and more have been developed in the states where it is now legal. These different strains have tailored effects, and there is no reason to expect that they won’t develop the same consumer loyalty as cigarette brands or other products. Conversely, existing brands and personalities are branching into the legal marijuana trade. For example, Bob Marley’s family, Tommy Chong, and Willie Nelson are already, or will be, selling their own brands of marijuana. The current issue is that there is no ideal manner to protect these brands, certainly not while marijuana is illegal federally. Federal trademark applications for marijuana are generally denied on the basis that they are barred by the Controlled Substances Act because marijuana is still a Schedule I illegal drug.
Regardless of the inability to register federally, it is still important for a marijuana brand owner to conduct a pre-use comprehensive trademark search covering websites, business names and state trademark registrations (and not just a search of the federal trademark database) to ensure that they are not adopting a brand name that is identical or confusingly similar to one already in use by a third party. As with any other industry, it would be very damaging for a marijuana business owner to invest time and money into a brand name, only to receive a cease and desist letter from a third party with superior trademark rights.
So what alternatives are there for businesses seeking to protect their proprietary brand of marijuana in states where it is legal for medical and/or recreational use? The first option is to register the mark as a trademark with specific states. State registrations are typically cheaper, so a state-by-state protection model could be feasible provided that the brand is actually in use in each state in which it is registered, as only a few states have the equivalent of a federal intent-to-use application. One drawback is that a state trademark only protects the rights to that trademark in that specific state, so it provides no protection if the brand expands into the state next to it, even if marijuana is legal there as well.
The next question is which states actually permit registration of marijuana brand names, considering how many states have now either legalized medicinal and/or recreational use. If a business could get a trademark protection in 28 states based on use, it would be evidence of the owner’s intent to protect the brand nationwide despite the impediments at the U.S. P.T.O. There does not appear to be any resource that has researched on a state-by-state basis whether marks for marijuana brands can be registered as trademarks. The potential difficulty with state registration is that 47 of the 50 states have their own equivalent of the morality clause codified in the Lanham Act §1052 (a), which could be used as a basis to deny such applications, though this language may be unconstitutional in view of recent decisions from the Supreme Court and the Federal Circuit Court of Appeals. It would be difficult to determine which states would accept such applications without actually trying to register a trademark in a marijuana brand name in each state, as few states possess a trademark database that permits searches customizable to the same extent as those that can be performed on the federal trademark database.
In states that do permit registrations for marijuana brands, one large issue is how to prevent businesses from gaining an unfair competitive advantage through the registration of trademarks in generic terms for marijuana, cannabis species or certain “famous” strains. It is accepted trademark doctrine that plant species are generic because consumers need to be able to describe the specific plant that they are attempting to purchase.[i] However, the examination procedures of the trademark offices of various states are not as thorough as the U.S. P.T.O., so the state offices cannot be relied upon to block applications for generic or descriptive terms. The ultimate determination of whether or not such a marijuana brand name registered by a state is valid, or impermissibly generic or descriptive, would rest with the courts if the matter came to litigation.
Common law rights are the most natural means of gaining protection in a marijuana brand name, but to make these most effective detailed records must be kept by the mark owner so that they can document their usage and rights in case of a future dispute. The mark owner should keep records detailing the first date of use of the brand on every single product, as well as samples on a continuous basis for each product going forward. Any arguments that common law rights protect a zone of expansion are dead in the water if the next state over deems marijuana use illegal.
Another potential protection option, if a business is specifically looking to protect the logo for its brand, is copyright protection. A number of large companies protect their logos with copyright law in addition to trademark law, provided that there is a sufficient level of originality in the logo. The Controlled Substances Act is not a bar to a copyright registration, as it is with federal trademark registrations. The registration of a logo with the Copyright Office would have the added benefit of additional enforcement rights and a path to statutory damages.
For the time being, trade secret law is the best bet to protect your client’s growing conditions (consisting of the seeds, lighting, heat, moisture, and other botanical factors). Your client will therefore have to consistently treat its proprietary information and “secret sauce” as a trade secret, just as Coca Cola does with its formula and KFC does with Colonel Sander’s blend of herbs and spices. Any parties, be they employees or outside parties, will need to sign either an employment agreement or confidentiality agreement before learning confidential information, or else the business risks losing its ability to protect against theft of trade secrets.
It is currently possible to get ample intellectual property protection for marijuana-related products. With regard to the drug itself, federal trademark law prohibits registration of a brand name but businesses can potentially gain some level of protection through copyright law, state trademark registrations, trade secret law and common law use.
[i] In re Pennington Seed, Inc., 466 F.3d 1053, 1057 (Fed. Cir. 2006) (quoting In
re Hilltop Orchards & Nurseries, Inc., 206 U.S.P.Q. (BNA) 1034, 1036 (T.T.A.B.
1979)) (internal quotation marks omitted)