Gretchen Temeles, of Duane Morris

Law students are taught that one purpose served by the civil legal system is to provide predictability in business. For the cannabis industry, predictability remains a work in progress in view of conflicting federal and state laws and regulations. Cannabis is a Schedule I controlled substance under the Controlled Substances Act, and possession of cannabis is a Class I felony under federal law. Nevertheless, 33 U.S. states and the District of Columbia have legalized medical cannabis, and 10 U.S. states and the District of Columbia have legalized recreational cannabis. This legal patchwork creates challenges for companies in the cannabis industry in banking, taxation, real estate, insurance and other areas that are routine for businesses in other industries.

Patent procurement for cannabis-related inventions is not beset by unpredictability. The U.S. Patent and Trademark Office (USPTO), a federal agency, routinely examines and grants patents covering cannabis-related technologies despite cannabis remaining a controlled substance under federal law. The USPTO applies the same standards to cannabis-related applications as it does to patent applications covering any other technology. An applicant must show that the claims are new, useful and not obvious, and must teach one of ordinary skill in the art how to make and use the invention. The number of granted patents and newly filed patent applications in the cannabis industry is increasing steadily and shows no signs of tapering off.

In contrast to patent procurement, patent enforcement in this emerging industry is at an early stage. A patent is a valuable business tool that provides the patent holder with the right to take legal action to prevent a competitor from engaging in activities such as making or selling the patented technology. Because enforcement of patent rights is governed by federal law, the Schedule I status of cannabis continues to cast uncertainty over whether cannabis patent rights can actually be challenged or enforced. Recent legal proceedings focused on cannabis-related patents show that the Schedule I status of cannabis is not an impediment to patent proceedings at either the Patent Trial and Appeal Board (PTAB) of the USPTO or U.S. Court of Appeals for the Federal Circuit. Although the sample size is small, these cases provide some insight to what patent holders, challengers and other cannabis industry stakeholders might expect in the area of patent enforcement going forward.

• Cannabis patent litigation before the PTAB: Insys Development v. GW Pharma Limited and Otsuka Pharmaceutical

Inter partes review (IPR) is a trial proceeding at the PTAB of the USPTO that permits a third-party to challenge the validity of claims of a granted patent. If the challenger demonstrates that the claimed technology was known to the public before the patent application was filed, then the claims fail to meet the novelty and nonobviousness requirements and the PTAB can declare the claims invalid.

The first IPR decision on a patent covering a cannabis-related technology was issued by the PTAB on Jan. 3, in Insys Development v. GW Pharma Limited and Otsuka Pharmaceutical, (IPR 2017-00503).

In the Insys IPR, the Schedule I status of cannabis was not raised either in the PTAB's decision to institute the IPR or in the PTAB's final decision. Instead, the PTAB focused on classic issues familiar to patent practitioners: obviousness and the qualifications of experts. Claim 1 of the challenged patent, U.S. Patent No. 9,066,920, reads:

• A method of treating partial seizure comprising administering cannabidiol (CBD), to a patient wherein the CBD is present in an amount which provides a daily dose of at least 400 mg.

The challenger in this IPR argued that the claimed dosage was obvious based on multiple prior art references, including one that described a slightly lower dosage for the treatment of seizures. Issues surrounding dosage range arise regularly during prosecution of biotechnology and pharmaceutical patent applications. The parties also clashed over whether particular experts were qualified to opine on the patented technology. However, the disagreement was not about the experts' experience in the cannabis area. Rather, it was about the experts' qualifications in the areas of pharmacology and treatment of epilepsy. In the end, the PTAB was persuaded that claims 1 and 2 were invalid as obvious over various prior art references, but let stand other claims relating to the combination of CBD and another cannabinoid, cannabivarin. The PTAB's decision was based on legal and scientific arguments and nothing more.

• Cannabis patent litigation in federal court: United Cannabis v. Pure Hemp Collective

The first infringement case in federal court on a patent covering a cannabis-related technology was filed on July 30, 2018, when United Cannabis Corp. (UCANN) sued Pure Hemp Collective in the U.S. District Court for the District of Colorado (Case No.: 1:18-cv-01922-NYW) for patent infringement. Both companies are located in Colorado and sell cannabis-containing products.

The litigation remains pending, but so far, the Schedule I status of cannabis has not been mentioned, and there is nothing in the court docket or filings to indicate that the court has treated this case any differently than any other patent litigation.

The parties have focused on issues typical in patent litigation. In its complaint, UCANN alleged that Pure Hemp's manufacturing and selling of a particular cannabinoid formulation infringes one or more claims of its patent, U.S. Patent No. 9,730,911 (the '911 patent). Exemplary claim 10 of the '911 patent reads:

• A liquid cannabinoid formulation, wherein at least 95 percent of the total cannabinoids is cannabidiol (CBD).

In response, Pure Hemp denied infringement and counterclaimed that the claims of the '911 patent are invalid. Pure Hemp alleged that substantially pure liquid CBD products were known to the public for at least 50 years before the filing date of the '911 patent. Pure Hemp cited scientific publications, a granted patent, and sales catalogs from scientific reagent companies selling purified CBD. Based on these references, Pure Hemp alleged that the claims of the '911 patent were anticipated or obvious and thus invalid. Pure Hemp also alleged that the claims of the '911 cover subject matter that is not patentable, relying on the U.S. Supreme Court decision in Association for Molecular Pathology v. Myriad Genetics, 569 US 576 (2013), where the court held that claims directed to isolated naturally occurring compounds were not patent eligible. Pure Hemp alleged that because cannabinoids are naturally occurring compounds, claim 10 is patent ineligible and invalid.

Pure Hemp later filed a motion seeking early, partial summary judgment that all of the asserted claims in the '911 patent are invalid because they are directed to patent-ineligible natural phenomena, namely cannabinoids and terpenes found naturally in the cannabis plant. In its opposition brief, filed on Dec. 31, 2018, UCANN countered that the claims as a whole are not directed to a natural phenomenon and are instead directed to human-modified liquid cannabinoid formulations that have markedly different physiologic effects than do cannabinoids found in nature and are thus patent eligible.

This case is still in the early stage and a trial date has not yet been set. However, as was the case for Insys IPR at the PTAB, the Schedule I status of cannabis was not a barrier to asserting a cannabis-related patent in federal court. Cannabis patent litigation appears to proceed in the same way as other patent litigation. The issues raised about the validity of cannabis-related patent claims are no different than the issues raised about the validity of claims directed to any other subject matter. But, there are still unanswered questions about patent enforcement proceedings for cannabis-related inventions. In its complaint, UCANN requested an award of damages to compensate UCANN for Pure Hemp's infringing activity. Will a federal court order a defendant to pay damages to a plaintiff for lost profits on sales of a product that is illegal at the federal level?

Takeaways

Enforcement of patents covering cannabis-related technologies is not dependent upon legality of cannabis at the federal level. Enforcement is happening now even though damages and remedies in patent enforcement proceedings have not yet risen to the level of predictability seen in other technologies. And the number of enforcement actions is likely to increase as the industry matures and consolidates.

Going forward, companies and other stakeholders in the industry should take proactive steps in managing their patent portfolios. For cannabis patent holders, regular and systematic evaluation of granted and pending applications in view of the company's commercial goals and competitor's activities is important. The claims in the cases discussed above were characterized by challengers as overly broad, and, in both cases, the challengers identified older literature that was relevant to patentability that was apparently overlooked by the USPTO during prosecution. Anyone seeking to secure patent protection for a cannabis-related invention should consider doing a careful analysis of patent and nonpatent literature prior to filing a patent application.

Gretchen L. Temeles, an associate at Duane Morris, practices in the area of intellectual property law with a focus on the biotechnology, pharmaceutical and chemical industries.