How Marijuana Businesses Can Protect Their Valuable IP

How Can Marijuana Businesses Protect Their IP?

Just like their peers in other industries, cannabis businesses often have valuable intellectual property, including trade secrets, trademarks, and patents. The difference for marijuana businesses is the difficulty in safeguarding their IP, particularly under federal law.

Federal IP Protections

A total of 29 states, including New Jersey, have approved or implemented medical marijuana programs, and eight states and Washington, D.C. have approved sale and adult use of non-medical marijuana. While states are increasingly decriminalizing the drug, it remains illegal under federal law. Under the Controlled Substances Act (CSA), marijuana is classified along with heroin, LSD, and cocaine as a Schedule 1 drug. The classification is reserved for drugs with “high potential for abuse, no accepted medical use, and no accepted safety for use in medically supervised treatment.” 

The CSA significantly impacts businesses that operate in the legal marijuana industry. With respect to IP protections, the U.S. Patent and Trademark Office (USPTO) has refused federal registration of medical marijuana and other cannabis-related trademarks. In addition to citing the CSA, the USPTO’s denials also rely on 37 C.F.R. § 2.69, which states that “[w]hen the sale or transportation of any product for which registration is sought is regulated under an Act of Congress, the Patent and Trademark Office may make appropriate inquiry as to compliance with such Act for the sole purpose of determining lawfulness of the commerce recited in the application.”

By way of example, earlier this year, the USPTO refused to register service marks PHARMACANN and PHARMACANNIS for services identified as “retail store services featuring medical marijuana.” According to the Trademark Trial and Appeal Board’s decision, the applicant could not “allege a bona fide intention to make lawful use of the marks in commerce because the services identified in Applicant’s applications involve the distribution and dispensing of marijuana, a controlled substance whose distribution and dispensing are illegal under the [CSA].”

Cannabis businesses have had better luck obtaining patent protection for medical marijuana technologies. Earlier this year, Innography used its patent analysis tools to determine there were a total of 66 U.S. patent grants and 62 U.S. patent applications related to medical marijuana. The U.S. government even holds a patent (No. 6,630,507) for the potential use of cannabinoids to protect the brain from damage or degeneration caused by certain medical conditions. 

Private Business Agreements 

Regardless of whether federal protection is available, marijuana businesses can take steps to protect their intellectual property through contractual agreements. For instance, a non-disclosure agreement (NDA) prohibits third parties, such as employees, consultants, and business partners, from revealing your proprietary information, such as patentable inventions and trade secrets. In addition, an NDA provides legal remedies should the other party share the information without authorization, including injunctions to prevent further disclosure, liquidated damages, and recovery of legal fees and costs.

Contractual agreements should also be used to address IP ownership. In start-ups and other small businesses, the operating agreement should address the ownership rights to any IP that the partners bring to the business, as well as any new IP it creates. Having a written agreement in place can go a long way to prevent ownership disputes down the road, particularly if the business is acquired or a partner leaves.

With respect to employees, employment agreements should contain provisions stating that workers assign their rights to any IP created in the course of their employment to the company. Employers do not automatically assume the rights to any intellectual property created by their employees. For instance, under U.S. patent law, inventors are presumed to hold ownership rights, and patents must typically be filed under the name of the inventor. 

Rely on State Law

While marijuana remains a Schedule 1 drug, those in the cannabis businesses should rely, as much as possible, on state IP protections, such as state trademark registrations and state trade secrets acts. However, as there are no state-level protections for patents, this creates a potential problem for inventions related to marijuana: unlike federal trademark registrations, which can be applied for at any time, one must apply for a patent within one year of first offering the invention for sale. This could force an inventor with a difficult business decision. Unfortunately, these challenges in IP protection will exist until such a time that federal law decriminalizes or legalizes marijuana.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Legal Cannabis States Pushing Back Against Sessions’ Warning Letters
• Harmony Foundation Receives Permit To Grow Medical Marijuana
• Gaming Industry Seeks Guidance on Handling Money from Cannabis Industry

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Brent “Giles” Davis, at 201-806-3364.

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.