Hazy times for Colorado's marijuana businesses
Many businesses are dealing with the impacts of Colorado’s foray into recreational marijuana. Often, this uncertainty is focused on how the new laws and regulations will be implemented. While compliance with the Colorado regulatory framework is often the first priority of companies associated with the marijuana industry, another important legal issue is lurking below the surface, and unfortunately how it is resolved remains to be seen. The issue concerns an area of intellectual property law that all businesses have – trademarks.
Trademarks protect identifiers of the source of goods in commerce – essentially they protect brands. Trademarks can be any non-functional aspect of a product or service that identify its source. They can be business or product names, logos, or even things such as product packaging or design (e.g., the shape of an I-Phone or a Coke bottle).
The law protecting trademarks has two main purposes. The first is to protect the goodwill built up by business owners with the consuming public.
Basically, we don’t want a company to spend 20-plus years building a good reputation only to have another company come in and adopt a mark that is intended to ride on the coattails of the first company. The second purpose is to protect the consuming public. Essentially, when you go and buy a Coke, you do so because you have certain expectations about the product including quality, price etc. Therefore, the law recognizes that it is in the public’s best interest to not allow dish water to be bottled and sold to the unsuspecting consumer as a Coke or for a fly-by-night company to sell shoddy knock off shoes as a pair of Nikes.
There are basically two types of trademarks – registered and unregistered. Unregistered trademarks (also called common law trademarks) arise from the business’ use of the terms to identify its goods. The scope of protection for common law trademarks is generally narrow. Fights about the geographic scope of common law trademark rights often get down to the zip code level. Because of these limitations it is not preferable to just rely on common law rights.
Registered marks are those in which the trademark owner has sought registration of the trademark with a state or with the federal government. Each state’s laws are different and can range from highly complex systems to Colorado’s system, which basically just defaults back to common law protection. Most trademarks are protected under the federal Lanham Act. Trademarks registered under the Lanham Act are enforceable in all 50 states even if the business hasn’t had sales nationwide.
The problem facing Colorado companies that are involved in or sell goods or services related to the marijuana industry is that, generally speaking, the law doesn’t allow for trademarks rights in goods or services that are illegal. On a broad level this makes sense; if you are conducting an illicit activity, you shouldn’t be able to sue someone else for doing the same illicit activity under a similar name. Doing so would tend to legitimize the illegal activity. But what happens when something is legal under state law but illegal under federal law?
Usually the answer would be that the state law is invalid due to the Supremacy Clause of the United States Constitution. However, this inconvenient fact is essentially the third rail in the marijuana debate. Even though the last two administrations have looked the other way, marijuana is still illegal federally. The federal controlled substances act prohibits among other things the manufacturing, distributing, dispensing or possession of certain controlled substances including marijuana and marijuana-based substances.
Additionally the CSA makes it illegal to sell, or offer for sale any drug paraphernalia (“any product, equipment or material which is primarily intended or designed for use in manufacturing, compounding, producing, preparing, injecting, ingesting, inhaling or otherwise introducing into the human body a controlled substance”) 21 U.S.C. §863. Because of this a company will not be granted federal trademark registration for marijuana or marijuana paraphernalia. Therefore a business owner cannot get a federal trademark for the name of their dispensary or their own brand they might assign to a particular strain of marijuana. Additionally a business owner would also be denied federal common law protection for any such mark under the Lanham Act.
Things most likely don’t fare much better under a state common law analysis. While there isn’t any case law out on this yet, but strictly going by the law, a court would have to deny state common law protection as well, due to the Supremacy Clause. This causes a huge conundrum – how are marijuana business owners supposed to protect their goodwill? How do we protect consumers that rely on brand names to make purchasing decisions regarding, quality, strength and safety?
Most ironically, a grower could produce a new strain, protect it with a plant patent, and give it a new name. If someone infringed the patent the grower could sue and obtain an award for damages. However, if the same individual sold an existing (non-patented) stain under the same brand name as the patented strain, the grower might not have any recourse.
So does this mean that marijuana-related businesses should just ignore trademarks? I would say that is not a wise choice. There are still many strategies that a business can use to get the most protection possible under both state and federal law, which while might not be ideal, it is definitely better than nothing. Additionally, sophisticated legal counsel can also employ other areas of intellectual property may also prove helpful in protecting brand identity.
Lastly, we really are in a situation of wait and see. Until either the federal law is changed, or some cases concerning these companies move their way through the courts, it’s all a bit hazy.