By: Sarah Teitelman, Esq. and Christopher McHattie, Esq.
As we predicted in 2016 in our Great “Green” Rush article, and in Sarah Teitelman’s student note The Stakes Have Never Been Higher: Why States Should Adopt A Model State Intent-To-Use Trademark Registration System To Facilitate The National Expansion Of The Marijuana Industry[1], the interest and activity around “cannabis” trademarks is at an all time “high.” Faced with intransigent resistance from the United States Patent and Trademark Office (the “USPTO”) to register “cannabis” trademarks, Congress is acting to legalize industrial hemp and cannabidiol (“CBD”), the nonpsychoactive component of cannabis, through the omnibus Farm Bill of 2018, which, if enacted, will authorize “cannabis” trademarks.
Specifically, the omnibus Farm Bill of 2018 marks a huge advance in the current state of cannabis legalization because Congress is amending the CSA for the first time in 50 years “so that industrial hemp plants containing no more than 0.3 percent THC” are legal.[2] This marks a huge leap forward for the cannabis industry because, up until this point, and as discussed in our Great “Green” Rush article and in The Stakes Have Never Been Higher, applicant’s for cannabis trademarks were refused registration as they could not lawfully use their cannabis trademark(s) in commerce. Now, the USPTO will have to find other grounds for refusal in order to prohibit an individual or entity from registering a cannabis trademark used on or in relation with hemp or CBD goods and/or services.
What are the broader implications of hemp and CBD legalization on the booming cannabis industry? The answer is simple: the beginning of a national market for cannabis related goods and a Great Green Rush to national cannabis brands. Currently, because it is illegal to ship most cannabis goods across state lines, the cannabis industry is dominated by small and medium sized businesses operating in individual states. These businesses protect their brand, logos, taglines, trade dress, and trademarks through state trademark registrations or common law trademark rights. However, state trademark registrations do not provide the same breadth of benefits as federal trademark protection because state trademark laws do not provide for intent-to-use trademark applications and they only protect the trademark within that individual state.
This makes it possible for two completely independent cannabis businesses to use exactly the same trademark in different states, without any recourse for the senior user of the trademark. Moreover, if two cannabis companies use the same trademark in commerce in different states, and neither has obtained common law trademark rights or a state trademark registration in the other state, both companies risk reputational harm and brand dilution by being associated with a producer of lower quality products.
For example, on October 29, 2018, the Washington Court of Appeals held that a California cannabis company had standing to sue a Washington cannabis company for trademark infringement in Washington State.[3] Headspace International, the California-based cannabis company, sued Podworks Corporation, the Washington-based cannabis company, alleging infringing use of its mark “THE CLEAR” when Podworks used the mark “TOP SHELF CLEAR” in connection with its own sales of cannabis products.[4] In the Original Complaint, Headspace alleged that it:
[i]s and has been for many years, a well-known seller and licensor of concentrated and refined essential plant oils including cannabis concentrates, vapor related products, educational and other services sold under the trademark THE CLEAR. [Headspace] developed a notoriety in the cannabis industry because their in-house chemist and engineer developed proprietary chemical process to create highly refined essential plant oils including cannabis concentrates. [Headspace] has, since April 10th, 2013, adopted and used the mark THE CLEAR for its products in California and for its services including licensing the mark THE CLEAR in Washington State…
. . . In 2014 [Headspace] entered into an agreement to license their proprietary chemical process and THE CLEAR mark to X-Tracted Laboratories 502 Inc., a Washington State business that is licensed with [the] Washington Liquor and Cannabis Board….X-Tracted Laboratories 502 Inc. continues to license [Headspace]’s proprietary chemical process and use [Headspace]’s THE CLEAR mark in commerce in Washington State according with its Washington Liquor and Cannabis Board license.[5]
Additionally:
Headspace further alleged that Podworks had used and continues to use the mark “THE CLEAR,” or “CLEAR,” for the sale of cannabis concentrates in Washington. Headspace also alleged that it sent Podworks a cease and desist letter, informing Podworks of its trademark for the mark “THE CLEAR,” and demanding that Podworks immediately terminate further use of the mark or confusingly similar marks. Podworks refused, and Headspace filed this lawsuit.[6]
In reaching its conclusion the Appeals Court determined that Headspace lawfully used its mark in commerce in Washington when it licensed “THE CLEAR” mark, giving Headspace standing to sue.[7] Had Headspace had a federal trademark registration, the issue in this case would never even have been reached and Headspace’s rights in Washington would have been “clear.”
As noted above, it is clear that Podworks use of “THE CLEAR” mark in relation to the sale of cannabis concentrates causes consumer confusion because it is difficult to distinguish between Headspace and Podworks as they offer similar products under the same name. This consumer confusion, which is difficult to get to without a federal trademark registration, is exacerbated in the cannabis industry because many consumers are uneducated about cannabis and rely on their local dispensaries and “budtenders” to educate them on the difference between products offerings.
While Headspace was fortunate to have licensed its trademark into Washington, that may or may not be the case in the other states that have legalized cannabis. In those states, Headspace, in absence of similar license, would have no standing to sue Podworks and, if it wanted to dissociate itself with the Podworks brand, Headpsace’s only recourse would be to educate its potential clientele on the difference between the two companies and suffer a marketplace where both “THE CLEAR” and “TOP SHELF CLEAR” are being used on similar goods.
Moving forward it is important for cannabis companies to aggressively seek federal protection for their brands, and whether by way of “ancillary” goods or hemp or CBD goods and/or services, to immediately develop brand protection strategies, cultivate brand loyalty, and protect their brands through federal trademark applications and registrations. This will ensure that the company is the sole entity providing cannabis goods and/or services under a specific brand and mark and cut down on consumer confusion. To ensure that a cannabis trademark used on hemp or CBD goods and/or services will obtain federal trademark protection it is important to file applications sooner rather than later to obtain priority. If a cannabis company has obtained Trademark Registration(s) in relation to ancillary goods and/or services as a hedge (as advised in the “Great Green Rush”), such company should immediately file applications to expand their registered rights to include their hemp and CBD goods and/or services.
Our firm looks forward to assisting the cannabis industry grow to new heights and become the multi-billion-dollar industry it is forecasted to be. For examples on successful cannabis companies that have invested in their brands, check out this article: https://ebaqdesign.com/blog/cannabis-branding/.
[1] Published in the American Intellectual Property Law Association Quarterly Journal
[2] See Reconciled Farm Bill Includes Provisions Lifting Federal Hemp Ban, Norml (Nov. 29, 2018), https://blog.norml.org/2018/11/29/reconciled-farm-bill-includes-provisions-lifting-federal-hemp-ban/.
[3] Headspace Int’l, LLC v. Podworks Corp., 428 P.3d 1260, 1265 (Wash. Ct. App. 2018).
[4] See “The Clear” Sues a Washington Company for Trademark Infringement, Marijuana.com (Jan. 30, 2017), https://www.marijuana.com/news/2017/01/the-clear-sues-a-washington-company-for-trademark-infringement/.
[5] Headspace Int’l, LLC v. Podworks Corp., 428 P.3d at 1262-63.
[6] Id. at 1263.
[7] Id. at 1265.