stocknshares/iStockphoto

The "green rush" has hit New Jersey. While nearly all cannabis entrepreneurs are keeping a keen eye on legislative developments, the savvy are already well ahead in what may be the key to unlocking the true value in the cannabis industry—branding. Much like the New Jersey craft beer boom before it, success in the New Jersey cannabis industry will not be driven solely by the acquisition of cultivation or dispensary licenses, or infusion of investment capital, but also by how well companies develop, protect and exploit their brands to distinguish themselves from the crowd.

Branding is not a new concept, nor are the various intellectual property laws that protect brands. What is new to most is how this burgeoning industry can take advantage of those laws within the context of state and federal restrictions perceived (often mistakenly) to limit the ability to protect and enforce brands within the cannabis space. The good news is that there are already a number of powerful tools that cannabis entrepreneurs can use to protect their brand, along with strategic alternatives that can be used to best position those businesses if and when the current restrictions are lifted.

Trademarks

When it comes to branding, trademark is king. Trademarks are the words, names or symbols used to identify the source of goods and services, and to distinguish those goods and services from those offered by others. Indeed, the general public may be familiar with a brand/trademark without knowing the actual name of the company that owns that brand/trademark. So how does one go about securing trademark rights for cannabis-related goods and services?

• Start Using It. Unlike in many foreign jurisdictions, U.S. trademark rights are based on "use in commerce," not registration. The U.S. Trademark Act defines "use in commerce" as the "bona fide use of a mark in the ordinary course of trade and not made merely to reserve the mark." See 15 U.S.C. §1127. Accordingly, and quite generally speaking, trademark rights attach the moment a mark is continuously used (as opposed to a single, token use) in connection with the public sale or distribution of goods and services. Trademark rights in the cannabis space are no different. Once a trademark is used to market cannabis-related goods and services, the first user that continuously uses the mark "in commerce" will have priority over any subsequent users.

• Register It. Trademark registration provides additional benefits to trademark owners. Registration on the Principal Register of the United States Patent and Trademark Office (USPTO) confers the following rights, among others, on the registered owner: (i) prima facie evidence of nationwide ownership, validity and use of the mark; (ii) constructive notice of ownership; (iii) the ability to provide actual notice of ownership through the use of the ® symbol; and (iv) the ability to bring a lawsuit in federal court and seek statutory damages if successful. Trademark owners can also gain nationwide priority through the filing of an "intent to use" application if the applicant has a bona fide, good faith intent to use the mark in commerce in the future and ultimately starts using the mark.

Federal registration remains the most powerful form of protection for trademark owners, but also the most problematic for businesses seeking to protect their cannabis-related trademarks at the federal level. The greatest obstacle to trademark owners in the cannabis space has traditionally been the USTPO's refusal to allow for registration of marks used in connection with goods and services that are unlawful under federal law and therefore cannot meet the "use (or intent to use) in commerce" requirement for registration. The enactment of the 2018 Farm Bill on Dec. 20, 2018, and subsequent guidance from the USPTO, has opened the door to the registration of cannabis-related trademarks that had previously been refused registration.

The 2018 Farm Bill removed "hemp" (cannabis plants and derivatives such as CBD that contain no more than 0.3% THC on a dry-weight basis) from the Controlled Substances Act's definition of marijuana. Based on the change, the USPTO amended its examination procedures to allow for the registration of trademarks used in connection with certain "hemp" products as long as the applicant specifies in its application that the associated products do not exceed the 0.3% THC threshold. However, the USPTO will continue to refuse registration for marks used in connection with products containing cannabis or cannabis derivatives that are regulated by the FDA under the Federal Food Drug and Cosmetic Act including, for example, food, drinks and dietary supplements. As such, the ability to register trademarks for cannabis-related products remains limited to unregulated products such as textiles, oils and lotions.

Cannabis businesses can also consider state law trademark protection as a low-cost alternative to federal protection. Although less robust than their federal counterparts, state registrations, where available, do provide many of the rights afforded at the federal level, the greatest limitation being their limited geographic scope. Same is true of international registration in countries where cannabis has been legalized. Although not necessarily less costly, international registration can provide valuable protections to companies operating abroad, and better position a U.S.-based company for domestic registration should the U.S. laws change.

• Be Strategic. Cannabis businesses focused exclusively on products that remain illegal or regulated by the FDA will be largely limited in terms of their options for federal trademark protection. That said, businesses can leverage their brands in connection with legal, unregulated goods and services such as ancillary products (i.e., vape pens and other devices for non-cannabis use), oils, lotions, clothing, foods/edibles/drinks not infused with CBD, and related services.

Companies engaged in the sale of both legal/unregulated and federally illegal/regulated products should be registering their marks in connection with the former. The "likelihood of confusion" test for trademark infringement claims does not require the use of a mark in connection with identical goods and services but only use that will cause consumer confusion as to the source of those goods/services. For example, if a company is using a mark in connection with the sale of non-CBD-infused products, it is unlikely that another company will be able to use the same mark in connection with CBD-infused versions of the same products given the confusion that may arise from that competing use. Moreover, if and when the cannabis laws are further amended, those who have registered their marks in connection with legal, unregulated goods/services will have significant advantages when they seek to register for newly legalized goods/services and when seeking to preclude others from registering similar marks in connection with related goods/services.

Patents and Trade Secrets

While the lawful "use in commerce" requirement has traditionally precluded registration of cannabis-related trademarks, the Patent Act has no such requirement. Accordingly, patent protection has been granted for a number of cannabis-related inventions, such as specific strains of cannabis plants (plant patents), cultivation and dispensary machinery and techniques, CBD-infused drinks, and ancillary products. The touchstone to patent protection is whether the invention is new, novel and non-obvious. Quite generally speaking, that depends on whether there has been previous public disclosure of the same idea or invention (a/k/a "prior art").

The "prior art" question is one of several at issue in United Cannabis Corp. v. Pure Hemp Collective, Case No. 1:18-cv-01922-NYW (D. Colo.), the first federal patent infringement case concerning a cannabis-related patent in which the plaintiff has alleged infringement of its patented liquid cannabinoid formulation. Another issue in United Cannabis is whether the federal courts will even hear a case concerning alleged infringement of a patented invention used in connection with an illicit/regulated substance. Having already decided a first round of summary judgment motions, the court appears to have answered that threshold question affirmatively. Finally, the court will have to address the patentability of certain "products of nature," which was the subject of a recent summary judgment decision wherein the court ruled in favor of patentability, finding that the patent was directed to "a non-naturally occurring delivery method of naturally occurring chemicals in … non-naturally occurring proportions and concentrations." Although limited in nationwide precedential value, United Cannabis provides initial insight as to how the federal courts will address the patentability and enforceability of cannabis-related inventions.

Trade secret law provides a low-cost alternative to patent protection. Although there are various definitions, generally speaking, a trade secret is information that is actually secret, derives independent economic value (actual or potential) from not being generally known to third parties, and is the subject of reasonable efforts to keep that information a secret. Many actually prefer trade secret protection to patent protection because, among other reasons: (i) it is less costly and time-consuming to obtain than prosecuting a patent application; (ii) it is not limited in duration, as is the case with patents; and (iii) it does not require public disclosure of the invention, as required in a patent application. Among the disadvantages of trade secrets are: (i) the risk of public disclosure/reverse engineering and lack of protection and exclusivity thereafter; and (ii) difficulties in enforcement, including less-stringent penalties for misappropriation.

Copyrights

Copyright law provides yet another avenue to protect cannabis-related brands. Copyright protection attaches the moment a creative work is "fixed in a tangible medium of expression" (17 U.S. Code §102)—meaning the moment a creative work turns from an idea to a tangible expression of that idea (i.e., a drawing, graphic design or photograph). As with trademarks, however, there are important benefits to registration—the most significant being that registration is a prerequisite to filing an infringement lawsuit.  Although copyright generally does not protect brand names, cannabis businesses can use copyright to protect original logo designs and other creative content within a company's brand portfolio.

David S. Gold is a member of the intellectual property, litigation and cannabis departments of Cole Schotz in Hackensack.