Brand Collision: Trademark disputes in the cannabis industry

Clearance is an important step due to industry’s state-by-state nature

Cannabis businesses face unique challenges in protecting their brands. With an outdated federal regulatory regime and changing state landscapes, cannabis businesses must be aware of limitations affecting the protection and enforcement of trademark rights.

Due to the state-based nature of cannabis regulations, it is important for businesses to keep in mind the possibility for national expansion throughout the brand name selection process. As more states (and countries) legalize cannabis, cross-border brand licensing is an increasingly attractive strategy for expansion.

The following article is from the March 2018 issue of Marijuana Venture, © 2018 Marijuana Venture.

Selecting a strong trademark at the outset, taking steps to learn whether the mark is available for use and/or registration and applying for registration are key to avoiding a claim of infringement and being able to effectively protect your brand.

 

Brand Selection

From inception, cannabis businesses should create registrable and enforceable brand names. To achieve this goal, it is critical to select a mark that is both “distinctive” and “exclusive.”

Inherently distinctive marks are not merely descriptive or generic, but are either fanciful, arbitrary (random, such as Volcano), or suggestive (such as MindTricks). Selecting an inherently distinctive mark puts you in a stronger position to defend against infringement. Moreover, even a non-descriptive mark could be weak if it exists in a “crowded field,” meaning there is widespread use of the term by multiple third parties, such as the words “canna,” “green” and “leaf” in the cannabis industry. Owners of marks in crowded fields have limited rights with respect to their trademark privileges and enforcement capabilities.

“Exclusive” refers to the right to use a mark without exception. When multiple parties use a mark in connection with similar goods or services, you would not have the exclusive right to the mark, because it loses its ability to identify the source. This is because it can be difficult for a buyer to distinguish one brand name from another and may purchase the wrong product when marks look and/or sound similar and have similar commercial meanings. Minor variations between marks such as CannaFarm, KanaFarms and Cana-Farm are not legally significant and have the potential to create consumer confusion.

Trademark Infringement

Trademark infringement is a legal claim made by one trademark owner against another, alleging that the use of two marks in the marketplace will result in consumer confusion. The essential issue is whether the similarity of the marks and relatedness of the goods/services are likely to mislead a buyer as to the source or sponsorship of a product. For a conflict to arise, marks do not have to be identical, nor do the goods or services have to be the same.

Clearance

To avoid a claim of infringement, it is essential to have a trademark attorney conduct clearance. Clearance (or searching) identifies whether others are already using an identical or confusingly similar mark in connection with the same or related goods or services and assesses the level of risk associated with using, registering and enforcing a proposed mark. Proper trademark clearance is not as simple as searching for the identical mark on the Internet or reviewing the references on federal or state trademark office databases.

Clearance is especially important for cannabis businesses, in part, because of their state-based nature. If your plan is to expand nationally, you have to know whether the same or similar brand name already exists in other states before using a mark. For example, if two companies, one in Colorado and one in California, each operate a cannabis business under the same (or a confusingly similar) name, the Colorado company may be able to block the California company from using that name in Colorado based on the Colorado business’ prior rights. Similarly, the California company may be able to block the Colorado company from operating under that name in California.

Trademark Registration

Registering a trademark comes with benefits that can be significant when enforcing rights. For example, owning a federal registration provides certain evidentiary advantages such as carrying a presumption of validity, ownership and exclusivity. This means that a business challenging a registered mark has the burden to prove otherwise.

Federal and state statutes, as well as the common law, afford trademark protection. Though common law (unregistered) rights are limited to the specific geographic area of operation, they can nevertheless be an important bar to third-party adoption of a mark and the basis for enforcement.

Enforcement and Disputes

Disputes come in many forms. You can receive a cease-and-desist letter, be served with a lawsuit, and/or a brand owner can initiate an administrative proceeding at the U.S. Patent and Trademark Office (USPTO) to block or cancel a registration. Regardless of the form of any challenge, allegations of infringement are serious. Engaging a lawyer to review the matter, analyze the legal merit of the allegations and respond accordingly is essential.

Typically, disputes between cannabis brand owners begin with one party sending a cease-and-desist letter requesting another party to stop doing something that allegedly violates its rights.

“Cannabusinesses with strong [trademark] portfolios including federal and/or state registrations will generally find the cease-and-desist letter effective amongst industry competitors with more-dubious histories of use and recordation,” says James Marion, principal attorney at Law Offices of James P. Marion, Esq.

Where federal applications or registrations are involved, administrative proceedings before the USPTO “have been steadily increasing in frequency as markets and company management matures to yield greater competition,” Marion observes.

Litigation before a state or federal court is typically the last resort if the parties cannot resolve their differences amicably. Cannabis businesses have generally focused on working together to create a responsible industry deserving of federal legalization, rather than drawing negative attention through litigation.

But, as the market expands and brand differentiation becomes key, the cooperative approach may not be sustainable. Selecting, clearing and registering a strong brand name lowers the risk of being challenged in a dispute.

Mary Shapiro is the managing director of Evoke Law, PC. She has extensive experience in trademark law and has been servicing the cannabis industry since 2005.

Nicole Syzdek joined Evoke Law as an associate attorney in 2016 and enjoys writing on diverse legal topics relating to cannabis. Evoke Law is an intellectual property law firm located in San Francisco, providing a full range of services for cannabis businesses, including trademark protection and brand management, licensing, packaging/labeling compliance, trade secret protection and Internet policies. For more information, visit www.evoke.law or email iplaw@evoke.law.

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