Strong intellectual property is the cornerstone of most start-up companies, and in most cases it is the key asset utilized by companies in securing financing and investment. Studies have estimated that non-tangible assets represent over 80% of an average business' value, and when it comes to startups, the number is even higher.1 The marijuana industry, because of its uncertain legal status under federal law, is at a strategic disadvantage, but despite this fact, the industry has still continued to blossom and is currently valued at $6.7 B and is expected to rise to almost $20 B by 2020.2 However, failure to secure traditional forms of intellectual property (i.e., patents, trademarks, and copyrights) should not dissuade marijuana entrepreneurs from the inherent value intellectual property. Developing a keen business strategy around both traditional and non-traditional forms of intellectual property can open the door to additional revenue opportunities.
Traditional Intellectual Property
Intellectual property – the intangible assets of a business – is often overshadowed by the two dominant forms of intellectual property – patents and trademarks. At the federal level, obtaining a trademark is not permissible, but patent protection remains available for novel and non-obvious inventions related to marijuana.
The U.S. Patent and Trademark Office will not issue trademark registrations for marks used in connection with marijuana or marijuana-based products that violate the Controlled Substances Act. In In re Morgan Brown, (Serial Number 86/362,968 (2016)), the USPTO refused to register the mark "HERBAL ACCESS" for use in connection with "retail store services featuring herbs" on the grounds the mark was being used in connection with the sale of marijuana in violation of federal law. On July 14, 2016, the Trademark Trial and Appeal Board agreed with USPTO that the services were "unlawful" and refused the application. Although, trademark protection is not allowed at the federal level, protection at the state level may offer narrower but important protection.
In contrast to trademarks, the USPTO will issue patents for compositions containing marijuana components (e.g., cannabinoids, THC) as long as the claimed composition or method has a particular utility, is novel, non-obvious, and is properly disclosed in the specification. As of early 2017, 324 patents included the term "cannabinoid" in the claims. Some examples include:
A chewing gum composition comprising, based on the total weight of the composition: (a) 0.01 to 1% by weight of one or more cannabinoids, . . .
A method for generating an aerosol comprising the steps of: (a) depositing a coating comprising a physiologically active compound onto a substrate . . .
. . . wherein the compound is selected from the group consisting of cannabinoid extracts from cannabis, THC . . .
A vaporizable composition that is inhalable after vaporization comprising: a cannabinoid capable of inducing a pharmacological effect. . .
While obtaining patent protection remains a critical business goal of many companies, including marijuana companies, patents offer two potential pitfalls to the marijuana industry – patentability
(1) Patentability/Validity – various strains of marijuana have been used and bred for a long time and determining whether a patent claim reciting a composition or method including a 'new' strain of marijuana or a particular amount of a cannabinoid or THC is truly novel brings the patentability/validity of these claims into question;3
(2) Enforcement – a patentee (presumably commercializing marijuana under the patent) may be reluctant to bring an infringement suit in federal district court against an infringer (also presumably commercializing marijuana) when the actions of both may violate federal law.
Know-How: Non-Traditional Intellectual Property
One important form of intellectual property that is often overlooked or perhaps (incorrectly) viewed as less valuable is know-how. Know-how is any non-public information, results, or data of any type in any tangible or intangible form including customer databases, ideas, discoveries, inventions, improvements, trade secrets, practices, etc. For the marijuana entrepreneur, in view of the lack of availability of certain intellectual property at the federal level, extrapolating value from know-how – internal systems, customers, supplier lists – greatly improves the chances of increasing value in the company.
In fact, extracting value from know-how is often times more valuable than associated patents or trademarks because know-how represents the value creation step that drives the furtherance of future innovation and next generation value. Remember, traditional intellectual property offers a government sanctioned right to preclude others from using the protected technology, while certainly valuable, this right does not offer affirmative rights. In contrast, the underlying know-how provides the company with a vastly greater tool chest of potential that if properly exploited can add tremendous value when properly combined with traditional intellectual property to a marijuana company.
Go Forward Strategy Tips
The marijuana entrepreneur, because of the experience and expertise obtained in developing a new company, has tremendous amounts of knowledge that can be harvested to exploit both traditional and non-traditional forms of intellectual property, for example:
- Take advantage of state trademark rights;
- Pursue patent rights;
- Harvest know-how and other forms of non-traditional intellectual property.
Our attorneys have expertise in monetizing traditional and non-traditional forms of intellectual property, in establishing corporate compliance programs to comply with the nuances of the marijuana industry, as well as regulatory expertise needed to adhere to the many state and federal regulations associated with launching and maintaining a marijuana business.
1 Forbes, Oct. 2, 2014, Pay Attention To Innovation And Intangibles — They're More Than 80% Of Your Business' Value, Mary Juetten, http://www.forbes.com/sites/maryjuetten/2014/10/02/pay-attention-to-innovation-and-intangibles-more-than-80-of-your-business-value/#5f0ff5e76812.
2 The Rohrabacher-Farr Amendment, which maintains that federal funds cannot be used to prevent states from "implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana," is set to expire April 28, 2017, adding more uncertainty to an economically exploding industry.
3 The burden of proving anticipation (lack of novelty) of a pending claim remains on the Patent Examiner to identify a prior art/use to render the claim unpatentable, and such a prior art disclosure may be difficult to identify.
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