Counterfeiting and the Cannabis Industry

The intentional and calculated reproduction of a product can weaken the value of a brand’s intellectual property

If imitation is the highest form of flattery, counterfeiting should be quite the compliment. But in the cannabis industry, like other industries, counterfeiting not only hurts a company’s bottom line, but also weakens the value of their intellectual property, exposes them to reputation risk and puts them in the crosshairs for product liability litigation. So rather than taking counterfeiting as a sign of success, cannabis companies must consider swift and decisive action against counterfeiters.

By definition, counterfeiting is the intentional and calculated reproduction of a genuine product or brand with the purpose of misleading the buyer into believing that they are receiving the genuine product. In the words of one federal judge, “counterfeiting is the ‘hard core’ or ‘first degree’ of trademark infringement that seeks to trick the consumer into believing he or she is getting the genuine article, rather than a ‘colorable imitation.’” We have seen this in other industries with fake iPhones, DVD movies and pirated copies of software, as well as countless other examples.

But what does this look like in the cannabis industry? If you create a new vape pen branded “MondoVapePen” that functions a certain way, has a high level of quality and offers certain features that make it different from competing products, then your brand name will become known for these qualities. People in the industry will know that when they buy a MondoVapePen branded product with your snazzy MVP logo printed on the side, they are getting the highest-quality vape pen available. As sales of the MondoVapePen products increase, so does the interest of counterfeiters. If they can make a product that will trick consumers into thinking they are getting a MondoVapePen, these counterfeiters can capitalize on your work, making money off of your invention and positioning themselves as parasites on your reputation.

And the bad news doesn’t stop there. In general, counterfeit products end up being inferior copies of the original, which is often done to save money and reduce production time, and because counterfeiters may be unable to fully reverse-engineer the original. So as counterfeit products begin to malfunction, turn out to be of sub-standard quality, prove to be dangerous or otherwise fail to match the standards of your original MondoVapePen product, your reputation is harmed as many consumers may not realize they bought a cheap knock-off rather than a real MondoVapePen. All of your work to build a reputation of a high quality, unique product can quickly go up in smoke.

Then the story gets even worse. When the counterfeit MondoVapePen product explodes in consumers’ faces, overheats and burns them or doesn’t function properly and causes damage, you may be hearing from regulators as well as attorneys representing the consumers hurt by these counterfeit products, thinking these are your products rather than counterfeit copies.

While counterfeiting isn’t going away anytime soon, there are steps a company should take to combat this.

First, as you are developing your brand and your products, take stock of all the forms of intellectual property rights that reside in them and make sure you protect all of it properly. Patent, trade secret, trademark and copyright protections are your first line of defense to protect your brand, your products, your bottom line and the long-term health of your company. Without proper intellectual property rights in place, your ability to defend your brand and your products will be greatly limited.

Second, watch for counterfeit products and act quickly and decisively. This may be as simple as a cease-and-desist letter, or it could be initiating litigation to stop the counterfeiter. The longer the counterfeiting is allowed to continue, the greater the risk to your brand and your company.

To spot counterfeiting as soon as possible after it begins, work with an intellectual property attorney to set up a state-of-the-art vigilance watch program. You should also work with your distributors and retailers to obtain reports of any tell-tale signs of counterfeiting, such as defective products.

Third, develop ways for consumers to know they are buying your product. This may be as simple as posting a list of authorized retailers of your products on your website and notifying consumers that if they buy somewhere else they aren’t getting the genuine product. Additionally, you can utilize unique product coding, blockchain-based solutions or genetic markers for tracing. You can also incorporate hard-to-replicate holograms into your packaging.

Fourth, for particular products that are in compliance with the Controlled Substances Act and other relevant laws, work with your attorney to ensure these products are protected by U.S. Customs and Border Protection. In April 2019, Customs and Border Protection seized more than 1,000 counterfeit Juul pods on their way from China to Delaware.

Fifth, adopt a proactive stance. Enforcing your intellectual property rights in court may be the reactive step you take when you discover counterfeiting, but you could be taking proactive steps to prevent the counterfeiting before it starts — steps like registering your patents, trademarks and copyrights; setting up vigilance watches; and securing confidentiality agreements that protect your trade secrets.

Without proper protections in the form of patents, trade secrets, trademarks and copyrights, enforcing your rights gets much more difficult and complicated. Counterfeiting is an illicit act of opportunity, and the more challenging you make that opportunity for a would-be counterfeiter, the less likely your products are to be counterfeited and the more likely you will have tools at your disposal to address any counterfeiting that does happen.

 

Tom Zuber is the managing partner of Zuber Lawler, which handles corporate, finance, M&A, IPO, intellectual property, FDA and litigation matters from offices in California, Illinois and New York. He holds a law degree from Columbia Law School, a master’s degree in public policy from Harvard University and a biomedical engineering degree from Rutgers University, where he graduated with highest honors. He can be reached at tzuber@zuberlaw.com.

 

Nathaniel Fintz focuses almost entirely on trademark litigation and global portfolio management. He is one of the most experienced cannabis trademark attorneys in the world. He is a summa cum laude graduate of Princeton and a graduate of Harvard Law School.

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