The California Problem for Cannabis Brands

The federal government won’t grant trademarks to marijuana brands. California doesn’t grant state trademarks to federally illegal products. One lawyer addresses the impasse business owners face

Now that California has legalized recreational cannabis, intellectual property attorneys are being flooded with client requests to file federal and state trademark applications to protect the brand names of cannabis businesses and products. While the law does not expressly permit the sale of cannabis until Jan. 1, 2018, cannabis businesses are wise to move quickly to secure their trademark rights and protect their brand.

Business owners in the cannabis industry are not unlike traditional commercial business owners who want to protect their company and brand names under applicable federal and state trademark registrations. However, legal hurdles to federal protection make it critical for a cannabis business owner to look at other legal protections to secure brand protection.

There are three ways to establish cannabis trademark rights: federal, state and common law trademarks.

Federal Trademark: Registering the brand name with the United States Patent and Trademark Office

Ideally, cannabis business owners could seek federal trademark registration because the benefits include constructive nationwide notice of the trademark owner’s claim, evidence of ownership of the mark, jurisdiction of federal courts and the ability to obtain treble damages and attorneys’ fees. In addition, federal trademark registration can be used as a basis for obtaining registration in foreign countries, via the Madrid Protocol, and registration may be used as a basis to prevent importation of infringing foreign goods. Federal registration also permits use of the ® symbol on the goods and entitles the trademark owner to certain statutory damages in cases of counterfeiting.

However, a federal trademark registered with the United States Patent and Trademark Office (USPTO) is generally not available to marijuana businesses because cannabis is still classified as a Schedule I narcotic under the federal Controlled Substances Act. The threshold requirement for registering a federal trademark is that the applicant has made “legal use” of the mark in commerce.

The USPTO has continually refused to register marks for use on cannabis and any other goods and services that violate the Controlled Substances Act. Under the act, it is unlawful to sell, offer for sale or use any facility of interstate commerce to transport drug paraphernalia (“any equipment, product or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA”).

State Trademark: Registering the brand name with a state trademark agency

California permits state trademark registration through the Trademark Unit of the Secretary of State.

States such as Washington and Colorado, which have legalized recreational cannabis use, allow business owners to file for state trademark protection. However, California — being the unique state that it is — does not currently permit state trademark registration for cannabis trademarks because it violates the Controlled Substances Act. California has adamantly rejected attempts to register trademarks on cannabis businesses. This might appear contradictory due to California’s legalization of medical marijuana in 1996 and now the legalization of recreational marijuana in 2018.

Sections 14270-14272 of the Model State Trademark Law of the California Business and Professions Code, which are simply titled “miscellaneous” provides the legal basis for such refusal to permit California state cannabis trademarks. Section 14272 states: “The intent of this chapter is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946 (15 U.S.C. Sec. 1051 et seq.), as amended. To that end, the construction given the federal act should be examined as non-binding authority for interpreting and construing this chapter.”

California’s Model State Trademark Law contains a provision that requires substantial consistency between state and federal trademark registrations. This includes the “legal use in commerce” requirement, which requires legal use at both the state and federal levels. As long as the Controlled Substances Act classifies cannabis as a Schedule I narcotic, it will violate federal law and therefore not qualify for federal or state trademark protection in California.

However, there is hope for California cannabis businesses seeking state trademark protection. A California bill recently introduced in the Legislature would create a state-level trademark for California cannabis products, providing marijuana businesses new legal protections and greater access to investor capital as California ushers in a sanctioned commercial marketplace. Assembly Bill 64 would expressly allow the California Secretary of State to register trademarks for cannabis goods and services. Cannabis businesses and their attorneys should be following this bill closely, and should be ready to apply once that bill is enacted as they want to be the first to register their mark in order to ensure protection.

Common Law Trademark: Using the brand name in commerce

The term “common law trademark” means that the trademark rights are established purely through use of the brand name in commerce. Common law trademark rights have been developed under a judicially created scheme of rights governed by state law. Federal or state trademark registration is not required to establish common law rights in a brand name, nor is it required to begin use of a brand name.

Common law trademark rights are limited to the geographic area in which the brand name is first used. Thus, if a cannabis strain is sold under the brand name “Aesthetic Experience” in a brick-and-mortar store in Los Angeles only, the common law trademark rights to that brand name exist only in Los Angeles. If another cannabis retailer begins to market a different blend in a San Francisco brick-and-mortar store under the same name — assuming it had no knowledge of the Los Angeles company — then there would be no trademark infringement.

However, if a Sacramento company attempted to sell its cannabis in Los Angeles under the Aesthetic Experience brand name, it would discover that the Los Angeles company’s common law rights would prevent its entry into that market. Of course, with Internet marketing and distribution, that muddies the water considerably.

Solutions for California Cannabis Businesses

There is significant value for a cannabis business to pursue filing both federal and state trademark applications for ancillary goods and services as the best brand protection strategy currently available.

This is based upon a theory that if a cannabis business registers a trademark for ancillary products, it might scare off potential copycats and allow the business to be first in line if the federal government changes its classification of cannabis as a Schedule I narcotic. Essentially, it provides a foothold upon which a cannabis business can rely to establish brand recognition in the marketplace. Cannabis businesses, however, are thus hoping that a trademark for T-shirts, hats or vaporizers will be enough protection that a business has laid claim to a cannabis trademark.

It is also advisable to seek the counsel of an experienced attorney if you are looking to protect your cannabis brand name, as critical decisions need to be made regarding what products are registered with the state and federal government.

 

Matthew Swanlund is the founder of Aesthetic Legal (www.aestheticlegal.com), a Los Angeles law firm protecting and promoting creative businesses and entrepreneurs in the U.S. and internationally. He focuses on copyright and trademark brand strategy, protection, registration and licensing; corporate entity selection and formation; and general business transactions in the arts, entertainment, technology, design, cannabis and sports industries.

 

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