United States: Cannabis Patent Lawsuits Are Blazing—Why The Law Is So Hazy

Last Updated: August 28 2019
Article by Daniel J. Pereira

There's no prohibition on patenting illegal substances; however, if marijuana is illegal under federal law, how can a patent holder enforce such a right? Oblon's Daniel Pereira takes a look at the challenges surrounding this question.

Marijuana and its derivative is a burgeoning industry now, growing in leaps and bounds as various states continue to legalize the plant for medical and recreational purposes.

Indeed, our neighbor to the north, Canada, has undergone a transformation into legalization and despite the illegality of marijuana under U.S. federal law, there are reports the Internal Revenue Service collects billions of dollars from this industry. One central component to most business activities are patents, which are increasing in number.

Patents are unlike trademarks in that there is no prohibition on patenting illegal substances such as cannabis. Trademarks cannot be obtained for such illegal products. It is patent law 101 that a patent does not grant any rights to practice the invention covered in one's patent but, rather, the right to exclude others from making, using, selling or offering to sell products within the confines of the patent.

The mechanism for enforcement is through the courts and as patents are a federal granted right—that means through the federal court system.

This raises the question that if marijuana is illegal under federal law (a Schedule I controlled substance under the Controlled Substances Act), how can a patent holder enforce such a right?

The Agriculture Improvement Act of 2018 (which re-classified some cannabis products from the Controlled Substance Act) has enabled some leeway in the question of enforcing a patent on an illegal substance. Yet, as of this writing, cannabis that includes the psychoactive THC remains illegal at the federal level.

The Issue of Patents on Illegal Substances

While there are currently no instances of a federal court enforcing a patent directed towards an illegal substance, as is common in the law, we look to somewhat related issues to answer this question.

For instance, enforcement of marijuana contracts has shown to be acceptable in federal court, where a district court declined a defendant's invitation to declare an insurance policy of coverage of a medical marijuana grow business void on public policy grounds because there has been "a continued erosion of any clear and consistent federal public policy in this area" and the defendant "having entered into the Policy of its own will, knowingly and intelligently, is obliged to comply with its terms or pay damages for having breached it." See Green Earth Wellness Center, LLC v. Atain Specialty Insurance Co., 163 F. Supp. 3d 821 (D. Colo. 2016).

Where we find some additional guidance is in bankruptcy cases relating to marijuana businesses; however, unlike the contract enforcement cases, federal bankruptcy courts seem to consistently hold that because marijuana businesses are violating federal law they are ineligible to benefit from the protections of federal bankruptcy law. See In re Arenas, 514 B.R. 887 (Bankr. D. Colo. 2014), aff'd, 535 B.R. 845 (10th Cir. BAP 2015), which involved debtors that owned a commercial building in Denver, Colo., and leased a unit to a marijuana dispensary.

This seems to be the most analogous to the question of enforcing a patent right in federal court as a contract is typically a state law matter whereas bankruptcy is within the jurisdiction of federal courts and applies federal law.

The Ethical Responsibility of Lawyers

Yet another issue to consider is a lawyer's ethical responsibility. Every lawyer is required to meet minimum levels of professional conduct, including not breaking the law. Indeed, the Model Rule of Professional Conduct 1.2(d) states that a lawyer cannot "counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent."

However, as lawyers are governed by their individual state bar's ethical guidelines, I would presume that in most instances where marijuana has been legalized, there would not be any ethical issue that would preclude a lawyer in representing a client in enforcing a patent directed to an illegal substance as provided under federal law.

The Colorado Supreme Court (in which state marijuana is legal), added a comment to their version of Rule 1.2(d) that permits lawyers licensed by the state to assist a client in complying with state law, including Colorado constitution article XVIII, secs. 14 & 16 (marijuana laws).

Yet, here as well, we see the conflict between state and federal law as the federal District Court of Colorado, which typically adopts rules similar to those of the state, explicitly disavowed Colorado's Rule 1.2(d) comment. That is, the District of Colorado only permits, as to marijuana clients, advising "a client regarding the validity, scope, and meaning of Colorado [law]," but that "the lawyer shall also advise the client regarding related federal law and policy."

Therefore, the presumption is that until such time that the federal government declassifies cannabis and/or creates laws that legalize the sale, distribution and possession of cannabis, enforcing a patent and obtaining the traditional benefits of patents, injunctive relief and/or monetary damages will be challenging to say the least.

Originally published by Bloomberg Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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