An older woman leans over, her voice suddenly hushed, “We’re going to a pot shop.” A slight giggle escapes her at the conclusion of this sentence. There’s no need, however, to speak in hushed tones any longer in Washington, Oregon, California, Nevada, or any of the 23 states and counting where marijuana is legal or decriminalized to varying extents. A self-identified Texas oilman I went to lunch with can attest to that. At a restaurant in Texas, where cannabis is not yet legal, he loudly launched into a story about his most recent vacation. He, his wife, his (adult) daughter, and his future son-in-law went on a road trip in an RV to Colorado and frequented pot shops, much to his whole family’s delight.
These days, open pot smokers are grandmothers, college students, corporate executives, Texas oil men, and everything in between. The once-successful anti-marijuana marketing campaign has run its course and the image of the person who enjoys the occasional toke now looks like… well, anyone.
So, as public attitudes and perceptions have shifted, state legislation slowly follows, lured by the additional promise of rich coffers from tax revenue. The federal government, however, still classifies marijuana as a Schedule I narcotic. Not to say that agencies within the federal government haven’t tried to acknowledge what’s happening in the states. The Obama Administration Department of Justice issued the Cole Memorandum, which said that while the federal government would not preempt state laws legalizing certain marijuana use, it expected such states to enact strict regulatory regimes, and noted that the DOJ would continue to enforce certain priorities under the Controlled Substances Act. With this, the cannabis industry cautiously moved forward without the threat of federal agencies raiding their enterprises. The cannabis businesses need to be able to sell their products to customers. The Financial Crimes Enforcement Network (FinCEN) also issued a memorandum suggesting ways that federally insured banks could comply with the law AND service marijuana-related businesses. Most banks are still quite hush-hush about whether they are providing this service, aside from some local credit unions that have taken the leap. The cannabis industry may also now be able to receive the protections of a patent for research and innovations, with the first marijuana plant patent awarded to the federal government (Patent No. 6,630,507).
Therefore, the cannabis industry can operate, can bank in a limited fashion, and can potentially innovate. Big money has poured into fledgling cannabis start-ups, albeit with additional holding companies and privacy LLCs masking the identities of the funders in many cases. Companies are becoming more established (Colorado legalized pot early in 2014, with Washington quickly following suit) and brands are becoming recognizable by consumers. However, if a consumer from Washington goes to Maine, he or she may wonder… “are these caramels that I’m purchasing, in this snazzy packaging that looks very similar to the caramels I bought in Washington, the same company as the Washington company?” And, what is the Washington company to do when it starts getting negative feedback about these Maine caramels? (I have nothing against Maine. I’m sure its caramels would be delicious.) Or what happens when knock-off versions of a Colorado company’s vaping device shows up on Alibaba.com? Or when a local Alaskan company discovers that someone in Washington has started selling something similar to its product on a similar domain name?
Any other company in a different industry would most likely have done a multitude of searches before launching. It most likely would have sought federal trademark protection. When those companies encounter these scenarios, they would have the full force of the Lanham Act, otherwise known as the Trademark Act of 1946, behind them.
Companies in the cannabis industry, however, cannot receive a federal trademark registration. The U.S. Patent and Trademark Office with one hand, the patent hand, has issued at least one cannabis-related patent, and with the other hand, the trademark hand, has thwarted cannabis-related trademark registrations by holding steadfast to a blanket policy that cannabis cannot be used lawfully in commerce because it is listed as a Schedule 1 narcotic in the Controlled Substances Act. If cannabis cannot be used lawfully in commerce, then any businesses selling cannabis or cannabis-related goods cannot receive federal trademark protections. And, if you think that the questions raised above are mere hypotheticals, they are not.
These cannabis companies search for a solution to these real business concerns and challenges and, often, turn to their attorney for help. This has led to several interesting strategies, a mess of confusion, and serious consequences antithetical to the public policy objectives of the Lanham Act.
The Effect of the Trademark Office’s Blanket Denial
Businesses and their attorneys are doing what they have to do to move their business forward within the bounds of a flawed system. Much like how during Prohibition, Budweiser registered a trademark for “BARLEY-MALT SIRUP AND HOP-FLAVORED BARLEY-MALT SIRUP FOR FOOD PURPOSES” (Reg. No. 0203128). (Sure. We believe you, Budweiser.) Similarly, cannabis-related applications may attempt to trademark “around” a client’s marijuana-related products—so, apply for their swag, apply for a tobacco-related product, or simply apply for an “intent to use” trademark instead of an “in commerce” trademark (and hope that the Drug Enforcement Agency reclassifies marijuana before long). Alternatively, companies may forego a federal trademark for a state-by-state approach. These strategies, however, are stop-gap measures and do not actually solve the problem created by the Trademark Office.
A State-by-State Approach
Cannabis businesses have state trademarks available to them. They can simply apply for a trademark in each state as they enter the market or as the states legalize marijuana. Great in theory, but state trademarks do not confer the same level of rights and do not provide the same benefits as a federal trademark. Applicants required to take a state-by-state trademark approach are burdened financially and subjected to varying legal standards, possibly requiring hiring attorneys in a variety of states. Additionally, this set-up creates a race to apply for trademarks in states as soon as the legislatures legalize marijuana.
Practically speaking, each company must worry about getting its application in “first.” Competitors may potentially block others from receiving a new state’s trademark protections during this race. Additionally, some states’ legislation may disproportionately favor local companies. This merely touches on the complications that arise where an industry with federal reach is forced to have a local or regional approach to a federal matter. Particularly where there could be an easy federal solution to the issue at hand.
Trademarking “Around” the Cannabis Products
Trademarks are categorized and regulated by the “goods and services” as well as the mark itself. So, where the trademark applied for is merely for “swag” or for an ancillary revenue stream, the applicant is not receiving a trademark on its main product line. This may be problematic on the business side and on the enforcement side. If I, as a business owner, am claiming infringement in federal court, and I don’t have a trademark on the thing that is being infringed, that limits my options for restitution. It also provides opposing counsel an opportunity to potentially cancel my mark.
Similarly, cybersquatting, or where a third party’s domain name infringes on a business owner’s trademark rights, is federally regulated. The ICANN’s Uniform Domain Name Dispute Resolution Policy (UDRP) is written to heavily weigh in favor of those with federal trademark registrations.
On the business side, some of the value in receiving federal trademark protection is the opportunity to more securely establish a nationally recognized brand, which can be very valuable to a company and in the eyes of investors. Having trademark registrations on products that are not the main source of revenue does not add value to the company and is, potentially, a waste of money for the company.
If no one has federally registered trademarks within the industry, then everyone is on equal footing and it should not matter, right? Already we’ve seen cases of candy companies battling cannabis companies that named their products using a funny play on the names of well-known candies. The candy companies were most likely in the right (the judge certainly thought so in the Tincture Bell case); however, should the situation be reversed, the cannabis company would be at a distinct disadvantage.
What is the Purpose of the Law?
The Trademark Office has determined that because cannabis is still a Schedule 1 narcotic, it cannot be in “legal use in commerce.” Cannabis, however, is being legally sold in almost half of the United States. The industries are generating tax dollars for their state and federal government, using banks in some cases, and at a cautious truce with the Department of Justice.
Without devolving into a philosophical debate about the purpose of law in society and the “social contract,” as attorneys, we should agree that laws should at least accomplish the public policy objectives that led to their creation. The Lanham Act had three main public policy objectives: (1) to protect consumers from being confused in the marketplace; (2) to protect business owners from having their goods and services misappropriated; and (3) to encourage competition in the marketplace, which benefits the public. (Zippo Mfg. Co. v. Rogers Imps., Inc., 216 F.Supp. 670, 694-695 (S.D.N.Y. 1963)) It additionally limits federal trademark registrations to marks lawfully used in commerce. (15 U.S. Code § 1112 and § 1127).
Does denying federal trademarks to cannabis-related businesses accomplish those objectives? I would say no. And how many states need to fully legalize marijuana before the federal government admits that it is no longer “unlawful?”
Next time you talk to a “bud tender” or a cannabis business owner, tell him or her the taxes they pay aren’t “legitimate.” I think the IRS would take issue with that.
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