Patents Friend or Foe?

Patents are the legal protection for a non-obvious invention, method, design, plant and, in many cases, formulation. Patents allow the holder to exclude any other entity from the practice or use of her invention for a term of 20 years. Patents grant their holders the exclusive rights to use, produce, sell and license their respective inventions or varieties of marijuana to another party.

As in every new industry, the opportunities presented by the respective industry, on which investors can capitalize, are extensive. In the marijuana industry, patentable subject matter may include the development of hybrid cannabis cultivars, unique growing and manufacturing equipment suited to the specific problems of industrial manufacturing of cannabis products, new molecules, compounds and product formulations, distinctive methods of extracting oils, and laboratory and manufacturing software systems, to name a few.

Patent protection is much more readily available than trademark protection. A 2017 report from Envision IP titled “Medical Marijuana Companies Are Rushing to File Patents” indicates that more than 266 marijuana-related patents have been issued to date and another 255 are pending. These patents range from protection related to compounds, formulations and various delivery mechanisms for therapy and treatment to manufacturing processes. Importantly, many of the applications have been filed by emerging pharmaceutical companies that are often specializing in cannabis-related inventions, and a number of large pharmaceutical companies also have patents in the marijuana space, such as AbbVie, Inc. Bristol-Myers Squibb, Sanofi-Aventis and Merck & Co., Inc.

Patenting in the marijuana industry is just at its very beginnings. An estimated 500 patents issuances and applications during the previous few years is very small when put beside the hundreds of thousands of patents that are filed every year in the United States. Yet, these developments, largely taking place since 2009 with the increased legalization of medical marijuana, should be of competitive concern to all marijuana-industry business owners.

Considerations for a Valuable Patent

For those companies that have patentable subject matter, obtaining legal protection or licensing rights from legitimate holders may need to become a high priority. It is so important at the beginning of an industry to stake your claim early to make sure you get it, and to recognize that many inventors may be discovering some of the same things at the same time. In regard to multiple inventors, it was once the case that whoever discovers an invention first was entitled to the rights to it; however, under recent modifications in U.S. Patent Law, we now have a “first-to-file” system, so it is important to file at least a Provisional Patent Application to gain a priority date and be first in the queue.

While patents are being issued, some commentators conclude that issued patents are worthless because they cannot be asserted in federal court—or, in the extreme, may be foolish, as they can be deemed as evidence of illegal activity in the hands of a federal prosecutor. These complications, coupled with the risks to an attorney defending a client in federal court, go well beyond the scope of this article. These are risks that warrant careful consideration.

While trademarks under the Lanham Act (also known as the Trademark Act of 1946), which governs the protections of intellectual property, present marijuana businesses with many highly specific legal obstacles to issuance, patents—with their differing law—are becoming easy to obtain from the federal government.

Nevertheless, cannabis operations have their strategic intellectual property hurdles that must be scaled in the drafting, prosecution and defense of the inventions that many consider to be no less onerous than the difficulties encountered in obtaining a trademark. Patents with broad, defensible rights don’t just fly off the desk of every patent writer, and the strategic thinking that goes into developing a bulletproof patent portfolio is an important part of every truly valuable patent.

It is notable, too, that the inability to sue in a federal court may pertain more to a plant patent than to manufacturing machinery or growing technologies. Federal patents also may be quite valuable, for example, in unfair competition law suits at the state level.

In some cases, trade secret protection—a deliberate formalization and secrecy marking of an invention or method—combined with the status of a nondisclosure agreement (which is very enforceable) may offer better legal protection than that found under patent law. If the legal exposure is disclosed by patenting, or the 20-year term of a patent isn’t long enough, or if others aren’t likely to make the same discovery or creation, and it isn’t likely to be able to be reverse-engineered from a product in the marketplace, and it can be kept secret, it may be wise to consider formal trade secret protection.

Coca-Cola is famous for having protected its unique soda formulation since the end of the 19th century as a trade secret—something that would have never been possible if it had sought patent protection. In addition, most states have trade secret laws that can provide some measure of non-federal protection for inventions.

Irrespective of these emerging patent complexities, many predict a gold rush of patenting during the coming years of this new industry until the scope of opportunity has been pieced out across the industry, with each company holding rights for certain portions of the possible world of intellectual property rights. When and if federal laws change, litigation between patent owners might become commonplace, especially at the level of plant cultivars, molecules and deep chemistry.

Still looking into the future, even more concerning is what corporate America may do. It may just, if the law allows, acquire existing cannabis companies the way food companies acquired natural and organic product companies to gain their revenue streams and their intellectual property, and ride the billions of dollars to trillions of dollars. Owning intellectual property would make the existing cannabis companies more valuable, and if they didn’t wish to be taken over, put them in a place to litigate in their favor.

The know-how to navigate the challenges of IP law to create valuable brands and strategic utility portfolios is essential to the early-stage growth of the cannabis industry and the preservation of its ethos. As in every industry, the spoils go to the most valuable brands and innovative companies.

Dr. Lindsay Moore is the CEO of KLM Inc., a strategic planning and branding consultancy in Colorado that also specializes in the management of intellectual property assets for companies. Dr. Moore is a former Adjunct Professor of Law at George Washington University Law School in Washington, D.C. She is also the co-author of “Intellectual Capital in Enterprise Success-Strategy Revisited,” published by John Wiley & Sons, 2008.