Authored By: Dickinson Wright PLLC


http://www.dickinson-wright.com

Alison D. Frey, Member

303 Colorado St., Suite 2050
Austin TX 78701
Phone 512-770-4223
Email afrey@dickinsonwright.com

 

K. Lance Anderson, Member

303 Colorado St., Suite 2050
Austin TX 78701
Phone 512-770-4207
Email: klanderson@dickinsonwright.com

Leila P. McClure Associate Attorney

350 S. Main Street, Suite 300
Ann Arbor MI 48104
Phone 734-623-1907
Email: lmcclure@dickinsonwright.com

The legalization of marijuana in a growing number of states has resulted in rapid growth of the industry. Every day more cannabis producers and distributors grapple with the legal uncertainties of the business, from issues regarding regulatory compliance, finance, contracts and leases, to employment and tax liability. As these players move into public operation or expand to new states, marijuana businesses are or should be just as concerned with branding and competition as any other enterprise would be, which means there is yet another area of legal uncertainty which must be grappled with – trademarks. This article explores the potential for exposure on the trademark front, as exemplified by a recently filed lawsuit, and how a cannabis business can adopt some best practices to avoid the typical trademark pitfalls in an imperfect legal landscape, including taking a holistic approach to intellectual property strategy.

A common focus of discussions in this area is the prohibition by the United States Patent and Trademark Office against the issuance of federal trademark registrations covering marijuana or marijuana-related goods.1 Many may assume that, until the USPTO changes its practice, this is the end of the story, when, on the contrary, it’s really just the beginning.

Regardless of the USPTO’s stance on trademark registrations for cannabis and cannabis-related goods, both state and federal trademark law applies to the industry and its players. Accordingly, it is still possible for a cannabis business to develop exclusive rights in its trademarks and enforce those rights. Likewise, it is still possible for a cannabis business to infringe a third party’s rights. As unfair as it may seem, a cannabis business that itself may not be entitled to a federal registration, can easily find itself in litigation against a plaintiff that owns and is asserting a federal registration. This scenario is currently playing out in what is one of the first major cases of its kind, The Gorilla Glue Co. v. GG Strains LLC, Case No. 1:17-cv-193 (S.D. Ohio 2017).

The Ohio-based producer of Gorilla Glue adhesive products sued the Nevada-based producer of a popular hybrid strain of cannabis that it had named “Gorilla Glue #4.” The complaint includes counts of trademark infringement, dilution, unfair competition, and cybersquatting under the federal trademark statute (the Lanham Act), the Ohio Deceptive Trade Practices Act, and Ohio common law.

Gorilla Glue claims that GG Strains is willfully trading on the reputation and goodwill that Gorilla Glue has built in trademarks that it alleges are famous. According to Gorilla Glue, GG Strains’s use of the same name was no accident: a founder of GG Strains allegedly chose the name when he discovered that handling the marijuana strain had caused his hand to “stick to things like Gorilla Glue.” Gorilla Glue claims this story demonstrates not only the fame of its mark and the association it has with strength and stickiness, but also that GG Strains chose the name for the very purpose of invoking those associations, thus willfully exploiting Gorilla Glue’s goodwill and reputation.

To prove trademark infringement under the Lanham Act, Gorilla Glue must convince the court that there is a likelihood of consumer confusion as to the source of the products at issue. This determination is based on numerous factors, only one of which is the similarity of the marks. Other considerations are the strength of the plaintiff’s mark, the relatedness of the goods and services being offered under the marks, the overlap in marketing channels, the degree of care exercised by consumers, and the defendant’s intent in adopting the mark.

To some, it may sound absurd to propose that consumers in the market for marijuana are likely to believe that this cannabis strain originates with or is endorsed by the Gorilla Glue adhesive company. It is worth noting, however, that Gorilla Glue owns at least one federal registration that explicitly covers clothing, which GG Strains also sells. Perhaps more importantly, as long as Gorilla Glue can prove its mark is famous, it will not be necessary to show an overlap or relatedness of goods in order to prevail on the dilution claim. The standard for establishing fame of a mark is high, but does not seem implausible in this case.

GG Strains has not yet filed an answer to the complaint, but it clearly has no plans to concede to Gorilla Glue’s claims. Despite early settlement negotiations that delayed pleadings, the parties now are in contentious litigation over personal jurisdiction and venue. Interestingly, GG Strains claims that Gorilla Glue deliberately manufactured a basis for personal jurisdiction by having two of its executives purchase GG Strains t-shirts online for delivery in Ohio. In its pleadings, GG Strains refers to the lawsuit as a true David-and-Goliath case. Because settlement has already failed once and the parties are still litigating jurisdiction and venue, it seems that the Gorilla Glue case may continue for some time; it will be something to watch as it could set important precedent for trademark law and the cannabis industry.

Regardless of the outcome, the lesson for the cannabis industry is already clear. While the industry itself may be novel, burgeoning, and still illegal in many states, the same approach to trademarks should be taken as with any other business. Just because you cannot register your chosen mark at the federal level, you are not immune from infringing another’s mark. Likewise, even without a federal registration, there are still ways to protect your trademarks from infringement by others.

Most importantly, before going to market, engage knowledgeable trademark counsel to review your proposed trademarks and determine the risk associated with use of them for the goods and services to be offered. Trademark infringement is a question of the likelihood of confusion of consumers. As mentioned above, when analyzing whether a mark is likely to confuse consumers into assuming an association or affiliation with the owner of another mark, there are many factors that are considered. One does not have to be selling identical goods under an identical mark to infringe. A likelihood of confusion can be found, and indeed has been found, in cases where the goods are different but the marks are somewhat similar, and in cases where the marks are somewhat different, but the goods are the same. For inexpensive items or goods purchased on impulse, the similarity required between the goods and the marks is less than would be required for a product or service that, by its nature, requires contemplation on the part of the consumer. So, just because there aren’t a lot of cannabis marks on the federal register, you should not assume that there are no prior conflicting rights to identify in a search. Your trademark counsel may want to perform a search that includes tobacco products, e-cigs, vaping goods, or herbal remedies. They may also want to look for any identical marks registered or used by third parties in connection with all goods or services.

Depending on your budget, these search efforts can be brief and inexpensive or exhaustive. Trademark counsel can suggest the best approach for clearing your proposed marks. If you have a large number of them, a brief and inexpensive “knock-out” search could be done to eliminate those that are clearly problematic. With the list narrowed, you may wish to have your counsel perform a more extensive search on the final few and rank them in order of perceived risk and ease of enforcement and registration. In addition to simply avoiding an infringement situation, the information gleaned from a full search can be very helpful in your final selection process, allowing you to choose a trademark or tagline that is unlikely to draw an objection if registered at the state level and/or capable of being enforced against others. All this can be learned from a clearance search and most firms are willing to provide these results on an expedited basis, if requested.

Bear in mind, it is almost always less expensive to pay for a clearance search up front than to change your mark down the road when a conflict comes to light. Given the high costs of litigation, both in terms of a business’s time and resources, any effort you can make up front to avoid engaging in protracted litigation will be time and money well spent. This is particularly true in an industry where business expansion is often only achievable via a licensing structure. As most licenses will contain a trademark license and thus a warranty against infringement, a licensor that adopts and licenses an infringing mark may not only be facing a stringent objection from the senior trademark owner or even a trademark infringement lawsuit, but breach of contract claims as well. If the senior trademark owner obtains an injunction and you are not able to sell through existing branded goods, both you and your licensees will have additional losses. If the licensor is required to indemnify its licensees and those licensees are also sued for infringement, the exposure could be enormous.

Once your mark has been “cleared,” you can work with your trademark counsel to develop a strategy to obtain the broadest scope of protection possible for your trademark. There are a number of vehicles available for doing this. In some cases, a federal registration could be sought for ancillary goods and/or services, such as clothing, an informational website, etc. Additionally, it is possible to register marks for cannabis-related goods at the state level in many states. (In California, the state trademark law has yet to catch up with the marijuana laws, but this is expected to change for 2018.) This process is generally faster and less expensive than a federal filing. However, state registrations do not generally last as long and thus must be renewed more often than a federal registration. Importantly, most states require use of a mark before an application can be filed. Unlike filings at the federal level, state trademark agencies do not generally allow an applicant to file an “intent-to-use” application and show use later. A state trademark application will generally require the applicant to provide a date of first use and a specimen of use. Accordingly, in order to carve out the greatest protection possible through state registration, an effort should be made to initiate use in as many states as possible as early as possible and to file those state applications at the earliest time.

A trademark owner’s rights are derived from use of a mark. Even without a registration, rights are continually being developed through use alone. However, without the statutory presumptions afforded by a federal registration, these common law rights must be proven up and they are limited to the geographic area in which the mark has been used. Accordingly, when relying on common law rights, it is important to maintain good records of use. You may wish to put in place a system of capturing your use of each mark in a manner that will show (1) dates of first use, (2) continual use, (3) geographic scope of use, and (4) the extent of goods and services offered under the mark. You can do this by maintaining copies of advertisements, noting the date of publication and geographic scope of circulation, taking annual photos of the goods bearing the mark, keeping copies of presentations given and the places/dates of each, etc. This author is aware of at least one new service which can help a trademark owner document its common law rights.

Particularly with an imperfect legal landscape, effective management of trademarks and related common law protections is a critical aspect of a larger effective brand management strategy. Often these initial steps serve as a foundation for other critical components of business models, including marketing, business development and quality assurance. The goodwill of goods and services, alongside other intangible assets, carry significant value in today’s businesses, particularly in businesses considered brand-heavy.

It is thus important to fully consider what additional intellectual property rights can be utilized to augment an overall branding effort involving trademarks. Utilizing complimentary forms of protection, such as trade dress, copyrights, trade secrets, design patents, and even utility patents, may significantly increase the strength and value of a business.

For example, certain elements of a product, including color themes in packaging or the atmosphere created in a place of business, are opportunities for trade dress protection. Trade dress rights may add to a brand portfolio in more nonfigurative ways by utilizing other general aspects of a product that is capable of carrying meaning.2 The standards required for recognizing trade dress protection are based on the same standards which qualifies a trademark for registration – distinctiveness. However, the protectable trade dress must be nonfunctional. This prevents disadvantages by preventing competitors from utilizing functionalities which may have nothing to do with the brand of a company.

Design patents, themselves opportunities for protecting trade dress, are rights granted by the United States Patent & Trademark Office to protect ‘ornamental features’ of a product or invention. In circumstances where arguments of ‘functionality’ may render the aspect of a product incapable of trade dress protection, design patents instead focus on patentability standards and, similarly, protect the ornamental features of the design that has practical utility. Design patents are potentially valuable assets to compliment a branding initiative, and provide a time limited right to exclude others from utilizing the same design.3

Copyright protection prevents nonfunctional items to be protected from being copied, provided they are forms of expression fixed to a tangible medium. Content of marketing materials, packaging and labels, web materials are all inherently copyrighted by the author of such works, and effective protection of copyrights, including filing for copyright registrations, are ideal for works ranging from printed materials to certain user interfaces of software. These works are further examples of protectable components of goods or services which may already utilize one or more trademarks for protection.

Where functionality represents a component of the branding effort, utility patents may themselves serve as opportunities to bolster the campaign. Unique functional features of packaging, such as easy-open containers, re-sealable packaging, novel surface coatings, and the like, all provide opportunities for utility patent protection. For cannabis-related products, these opportunities may look to the products themselves, whether unique strains (similar to Gorilla Glue #4) or unique formulations of cannabis-derived ingredients. Utility patents (and the less common plant patents) are increasing with regard to cannabis-related technologies. It is therefore always important to consider the patent landscape, similar to the trademark landscape, when determining whether to enter into the market, both for patentability as well as freedom to operate. This includes engaging knowledgeable patent counsel to review your product offerings to determine the risk associated with use of them for the goods and services to be offered. In the case of many cannabis-related firms utilizing license models for entering into each state, the expected representations and warranties will often result in product owners agreeing to indemnify for infringing products.

A final form of intellectual property, trade secrets, can play an integral part in a branding strategy, including proprietary positions capable of being kept a secret. Provided businesses use reasonable steps to maintain the secret, such secrets may be held perpetually, and often, penalties for misappropriation are significant. Utilizing trade secrets in branding involve maintaining quality assurance and quality control measures for products sold as well as customer lists and methods of doing business ranging from customer engagement and complaint protocols. Almost every state has a version of the Uniform Trade Secrets Act4, and the federal equivalent, the Defend our Trade Secrets Act of 2016, now gives a federal cause of action for misappropriation of trade secrets.5

The Gorilla Glue case is a good example of risks facing cannabis-related businesses arising outside the cannabis market. In addition to ensuring proper consideration of clearance of a name or brand, proper execution on protecting a brand, including using other forms of intellectual property protection is important. With so many players entering the industry at one time, there is bound to be conflict. Taking these steps could make the difference between being the David or the Goliath if you find yourself in a dispute.

 

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1 Pursuant to TMEP § 907, “if the record indicates that the mark itself or the goods or services violate federal law, an inquiry or refusal must be made.” The example given is evidence indicating that the identified goods or services involve the sale or transportation of a controlled substance or drug paraphernalia in violation of the Controlled Substances Act (“CSA”), 21 U.S.C. §§801-971. As marijuana is still considered a controlled substance, if there is extrinsic evidence indicating that the goods or services would violate the CSA, the examining attorney must refuse registration.

2 The Lanham Act contains several laws and regulations covering trademarks and unfair competition. Section 43(a) of the Lanham Act (15 U.S.C. §1125(a)) discusses the elements of trade dress protection as a function of prohibiting generally unfair competition.

3 See 35 U.S.C. §173 – Design patents filed after May 13, 2015, are valid for a period of 15 years from the date of filing.

4 Every state except Massachusetts and New York has adopted a version of the Uniform Trade Secrets Act.

5 See Defend Trade Secrets Act of 2016, S. 1890, 114th Cong. § 2 (2016).