Beyond federal trademarks

Industry-wide legal headaches are on the horizon

 With the legalization of marijuana in California, trademark protection issues will erupt like never before. Roughly 30 states have now legalized medical or recreational marijuana. Moreover, the election of President Donald Trump and the confirmation of Attorney General Jeff Sessions portend a possible change in federal enforcement efforts regarding the sale and possession of marijuana and related paraphernalia.

The trademark legal front is also active. On Oct. 27, 2016, the Trademark Trial and Appeals Board denied federal trademark registrations for marijuana-related sales and services to JJ206, LLC (dba JuJu Joints). The JuJu mark was for a “smokeless marijuana or cannabis vaporizer apparatus” and “cannabis delivery device.”

Larger-scale commercialization of marijuana puts this nascent industry on a collision course with federal obstacles of a far greater scale than existed just months before. It is time to pause and ask: What level of trademark protection can these companies enjoy? What strategies can be used to cope with these issues?

Trademark protection is important to marijuana businesses, as it is to all successful companies. New companies will face increasingly vigorous competition. Differentiating their product and enhancing their brand not only serves as a symbol of source but also assures consumers of the character and consistent quality to expect.

At its core, that is what federal trademark protection provides. A registered mark provides significant benefits, including nationwide protection and priority, and a presumption of ownership of the trademark. Priority from federal registration is nationwide, giving the first to use the mark a coast-to-coast market. But federal trademark registration is generally not available for cannabis businesses.

Federal trademark registration is not permitted for unlawful uses. The federal Controlled Substances Act prohibits making, distributing or possessing controlled substances, including marijuana, and the sale or use of drug paraphernalia. Thus, marijuana-infused food and beverages, oils, creams and smoking implements do not qualify for registration. Further, enforcements based on unlawful use in connection with federal registrations are not enforceable, according to a Ninth Circuit federal case in 2007 brought by CreAgri, Inc.

One option marijuana businesses have is seeking registration for a non-regulated use. While federal registration is not available for goods and services that are illegal, federal registration is still an option for goods or services capable of use outside the drug context. Registrations have been granted, for example, for dissemination of marijuana-related information, promotional items and food and beverages which do not contain a controlled substance.

This will not go as far as these businesses prefer, of course. However, registered protection for food items like non-cannabis brownies under the mark “DreamSweets” might give some protection against a competitor selling “DreamSweets” or even “DreamTreats” brownies containing marijuana.

 

Alternatives to federal registration

Consider two hypothetical producers of recreational marijuana. One is based in Colorado and begins selling under the Canna Bong brand in 2015. The other is based in Washington and markets CannaBhang edible products in 2016. What can possibly go wrong?

– State Trademark Registration: Aside from federal registration, one option both companies have is to seek state trademark registration. One could simply seek registration of the mark in each particular state in which legalization has occurred. This would be an unusual strategy in any other industry, where a single, federal registration would replace dozens of state registrations. While most businesses need not resort to state registrations, some marijuana-oriented companies may need to consider it.

A state registration strategy would involve multiple filings in selected states, creating a patchwork of protection. Aside from the cumbersome process itself, another shortcoming is that in most states, there is no process for applications prior to sales of the product with the branding.

Intent-to-use applications, available in federal registrations, allow one to secure priority rights to a mark even before sales of the goods or services begin. This is particularly helpful in a new, fast-growing industry. It allows an applicant to select and secure the mark while it develops the product, before others rush in. However, the registration is issued only after the product is sold.

Even without intent-to-use protection, however, state registration is a good approach for many legalized sellers. Applications are relatively simple and thus cheap.

However, there’s a big glitch in states like California, which currently follows the federal USPTO standards for issuance of registrations. Thus, a mark that is not registrable at the USPTO is not registrable in California, even if the sale of goods is lawful under state law. However, the California Legislature is considering a change to that standard, so stay tuned.

Relying on a state-by-state strategy means companies have to “race” to each legalized state to be the first to use or register a mark with that particular state. Since the Canna Bong and CannaBhang marks are confusingly similar and for similar but different goods, the first to register in California may block the second from obtaining protection. Canna Bong may be registered in Nevada to the exclusion of CannaBhang; CannaBhang may be registered in Maine, to the exclusion of Canna Bong.

– Common Law Protection: The second option is to rely on the common law and not seek federal or state registrations. Common law trademark rights arise simply from good faith (bona fide) sales in a given area. Thus, one who begins selling product with a distinctive trademark can have priority over a second seller using a confusingly similar mark for similar goods.

One limitation of these unregistered marks is that protection only reaches as far as the goods are sold. Localized sales of Canna Bong in the San Diego area, would give that producer local, but not statewide priority. If CannaBhang is the first to establish sales in Northern California, it may have priority there. Note that the first to sell a product anywhere (in this case Canna Bong) is irrelevant on the statewide or common law level.

Complicating this picture further, the territorial reach of a company is not always obvious. Is Canna Bong only sold in the San Diego area or has it been established further north, into Orange County or parts of Los Angeles? Carried out over a 30-state map, this can get very complicated. The pattern of trademark protection may become even more balkanized by this process.

While there is no explicit bar in enforcing marijuana-based common law marks in federal court, the issue of illegality is untested so far.

– Priority Fights Looming: Current strategies aside, widespread state registrations and common law protection will (necessarily) create industry-wide legal headaches in the future. There will be complications in enforcing common law rights between parties. It is not always easy to prove the first sale in an area or to define the area adequately.

What if federal law changes to allow federal registration? Problem solved? No. If prolonged, the current trends will complicate our trademark future. The relatively clear national priority rights arising from federal registration will be problematic at that point. The ongoing process of patchwork creation of state registrations and common law rights will produce a thicket of exceptions to national priority by then. For example, a producer may come along and register Kana-Bang for marijuana cigarettes in the USPTO before Canna Bong or CannaBhang. However, each of the latter companies will have priorities over Kana-Bang in the areas and goods for which rights have already been established, so federal registration won’t mean what it usually does.

 

Robert W. Payne practices intellectual property law at Payne IP Law (www.bobpayne.com), serving clients nationwide. He is the former chairman of the California Bar’s Intellectual Property Section and has represented clients in trademark, patent and copyright matters for more than 20 years.

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