While business booms into the tens of billions of dollars in the legal marijuana industry, the most successful companies are handicapped by their inability to obtain federal trademark protection for their brands and worthwhile patents for their inventions. These companies find themselves in a very unusual position: Because their business violates federal law, they are deemed to have “unclean hands” before federal courts, and so they cannot benefit as other business do from federal laws surrounding banking, bankruptcy and intellectual property.
Intellectual property is of great strategic value in winning in the marketplace and against competition, and of substantial monetary value in terms of corporate valuation and business capitalization. In the total U.S. economy, trademark and patent portfolios account for up to 65 percent of the market capitalization of large companies such as those found in the S&P 500. And intellectual property, in all of its forms, is the major determinate in delivering intellectual capital to these companies.
Importantly, each kind of intellectual property is a different sort of legal entity, and each are regulated by a different body of law. In gaining a sustainable advantage in the marketplace, it is important to understand the particular laws and to have a strategic plan in place that optimizes each kind of intellectual property to make it a strategic asset for the company. Every kind of intellectual property is valuable, but the two most obvious forms for the marijuana industry are trademarks and patents. The good news is that with careful strategic thinking, there are strategies that can allow marijuana companies to obtain measured success at obtaining intellectual property and enjoying many of the benefits of owning both trademarks and patents. However, the strategies we refer to are complex in both their theory and their successful execution, and for this reason, we speak of “threading the intellectual property needle”—it can be done, but it isn’t always easy, and there are some imperfections that cannot be overcome.
A trademark is the legal protection granted for a brand name, stylized logotype, design and other markings, and it allows its holder to prevent another business from using any marks that are “confusingly similar,” or trade on their equity for the same goods and services for so long as the mark is in continuous use and good standing. Trademarks never expire if they are managed properly.
Interestingly, it is not possible to get a Federal Trademark Registration from the U.S. Patent & Trademark Office for a marijuana product or service because cannabis is illegal under federal law. Under the Lanham Act, trademarks may only be issued to ‘a lawful business’ that is ‘engaging in interstate commerce.’ Therefore, the marijuana industry loses out on federally registered trademarks for two reasons: 1) that cannabis isn’t legal under federal law; and 2) that cannabis can’t be sold across state lines.
Nevertheless, trademark protection may be available under state laws or, in some cases in virtue of common law protection. A state registration is essential if it can be obtained, even though it is limited to the issuing state. As well, state law in many cases will provide holders of state trademark registrations with statutory remedies against trademark infringement.
The first company to adopt a mark has a common-law duty to prevent others from using the same or a confusingly similar mark that could confuse consumers as to the source of the respective goods or services. One hopes that each business will choose non-similar marks as their brand, but the bigger the market becomes, the more likely it is that one or more other company may use the same brand without even knowing they are infringing the rights of the first user. Those who have trademarks must remain vigilant to protect their rights, and those who are adopting a mark need to be careful not to choose a mark that another company is already using.
A company should pick its brands and taglines carefully to ensure that it is highly differentiated and will provide its enterprise or its products and services with what is called “secondary meaning.” Secondary meaning is a term of law that refers to marks that are “suggestive,” “arbitrary,” or “fanciful.” Marks that are generic or “merely descriptive” are not protectable under the law. For example, generic terms that refer to a general class of items like “marijuana” or “sativa” can never be protected under the law and cannot be owned by a single party. As well, marks that are “merely descriptive” that only describe a product or service, such as “green bud” for marijuana are not protectable either. “Suggestive” marks can be protected and owned under the law because they evoke a quality or attribute of the respective product or service, such as “caterpillar” for tractors. In addition, marks that are “arbitrary” or meaningless and have no relation to the product or service with which they are used like “Apple” for computers, or “Venus” for pencils can be protected under the law. “Fanciful” marks are coined terms that also have no specific meaning, such as Kodak or Exxon and thus are highly distinctive and can be protected under the law.
All trademarks should be searched by an attorney or a person who is experienced at trademark searching to make sure that a proposed trademark doesn’t violate a protected trademark, either in the marijuana industry or outside the industry. There have been instances where a cannabis company was sued from outside the industry for trademark infringement. A well-known example was the “Reefers” peanut butter cup, which was sued for violating the famous trademark of Hershey’s Reese’s Peanut Butter Cups. Also, with an eye to the future, a check against the Federal Register of Trademarks is a wise move to gain a bigger-picture perspective. If one day federal law should change and allow the sale of cannabis products at the national level, it would be important to have picked a state trademark that would stand a chance of also being issued as a federal Trademark Registration. If the existing state mark couldn’t be extended to the national level, the company could have to abandon the mark to avoid infringing a company on the national stage, and find a new name after already having built valuable brand equity in its state mark.
In addition, it is important to have a copyright strategy in place to support trademarked products and services. The trade dress (characteristics of appearance), logos and design aspects of a business should be protected with copyright protection, even though it remains uncertain if the copyrighted content can be asserted or defended in a federal courtroom.
These limitations and complications with “threading the needle” often predispose cannabis companies to discount the importance of building strong brands, and thus undermine their efforts to compete effectively. However, with or without trademark registration or legal protection, good brands are central to successful businesses as they provide a recognizable identity, differentiation of goods and services in the marketplace, engender product loyalty, repeat sales and build monetary brand equity that becomes very important when a business is seeking capitalization or becomes involved in a merger, acquisition or a public stock offering.
In the economy as a whole, brands are the most valuable intellectual property across all business sectors. Indeed, during 2016, Apple, the most valuable brand in the world, was valued at $154 billion, and many of the top 10 most valuable brands were worth more than their annual revenue in brand valuation. While there are no brands in the marijuana industry approaching that order of magnitude, trademarks and branding are alive, well and growing rapidly.
Every business should realize that there are important ways to thread the needle of trademark protection and should have a brand and whatever legal protection they can obtain. Given the competitive advantage and substantial brand equity that can be developed with a well-managed trademark, the standard cost of $3,000 to $5,000 for a trademark registration may be a very good investment.