Yes, cannabis is still listed as a Schedule 1 Controlled Substance; and yes, the United States Patent and Trademark Office (USPTO) will not register trademarks for cannabis strains. But there are still a number of creative ways that cannabis businesses can stake a claim to trademarks; trademarks that the owners anticipate they will be able to expand to their cannabis products when, eventually, the USPTO lifts its embargo.

Federal Trademarks for Cannabis Collateral Products and Services

The USPTO has issued numerous trademarks for cannabis collateral products like rolling papers, grinders and vaporizers (The Original Amsterdam, Halcyon Haze); as well as cannabis themed clothing (Ganja Guy, Marijuana Monkey). The USPTO has also issued trademarks for cannabis related services, such as cannabis directories (Mellow Pages, Fortune420); advocacy groups (Legalize Consciousness, Women Grow Cultivating Cannabis Entrepreneurs) and cannabis medical advice (Perfect Marijuana and Seed to Patient).

These cannabis businesses are establishing a beachhead; branding their identity now to provide them with a substantial head start when they apply to register these trademarks for their actual cannabis products after the USPTO eventually allows such registrations.

State Trademarks for Actual Cannabis Products

Some of the states that have legalized cannabis are granting state trademarks to actual cannabis products as well as collateral goods and services. These trademarks provide trademark protection within the state, and a state trademark holder should have a substantial advantage to expand its trademark footprint nationally when the USPTO begins accepting such registrations. The California Secretary of State’s Office, which is responsible for state trademarks, is accepting applications for  trademark registration for cannabis products, although it will not confirm whether it will be granting those registrations. Given the size of the California market, cannabis businesses should submit their trademark applications yesterday.

Common Law Trademarks for Actual Cannabis Products

Cannabis businesses can also aggressively brand their cannabis products, relying on common law trademark rights. While the common law does not allow for infringement damages, it does provide trademark holders the right to enjoin an infringing use. Again, the use of fanciful names and aggressive brand protection should give a cannabis business priority in regard to its first-use-in-commerce date when the USPTO finally begins registering cannabis trademarks.

Using Cannabis Branding/Trademarks as a Shield

While the USPTO will not issue trademarks to cannabis products, cannabis businesses faced with trademark infringement actions can assert the usual trademark defenses, such as fair use, lack of likelihood of confusion, etc. Our firm represented a local cannabis dispensary that was sued by a non-cannabis business for trademark infringement. In that case, the plaintiff argued that since our client could not register its mark our client was effectively defenseless and had to cease all use of the disputed mark. The federal judge disagreed, allowing our client to assert the usual trademark infringement defenses.*

What Are You Waiting For?

With California’s recent legalization of recreational cannabis, existing cannabis businesses are looking to expand and new players are getting into the business. Despite the USPTO’s prohibition, savvy cannabis businesses are establishing their intellectual property rights today.

*Every case is different. Prior results do not guarantee a similar outcome.

Today the Supreme Court agreed to decide an ongoing conflict, pitting a trademark registrant’s First Amendment rights against longstanding law precluding trademark registration of “disparaging” marks.

In This Corner: Trademark Law & the USPTO

Section 2(a) of the Lanham Act, precludes trademark registration of marks that are: immoral, deceptive or scandalous matter; or matter which may disparage …or bring them into contempt or disrepute….” Since World War II, the United States Patent and Trademark Office (USPTO) has relied on Section 2(a) to deny registration to such marks, but in December 2015, for the first time, the legality of Section 2(a) was called into question.

In This Corner: The First Amendment & The Slants

An Asian-American rock band, The Slants, sought to register its name, but the USPTO rejected the name as disparaging. The Slants appealed to a federal district court, which affirmed the USPTO’s decision, but when The Slants appealed to the Federal Circuit, the majority found that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

The Slants asked the Federal Circuit to order the USPTO to register its trademark, but the court declined. The USPTO issued guidelines, advising trademark applicants that any applications with potentially disparaging marks would be held in limbo until the issue was resolved.  Then the USPTO asked the Supreme Court to decide the issue.

In This Other Corner: The Washington Redskins

Meanwhile in June 2014 the USPTO deregistered the Washington Redskins’ trademark under Section 2(a). The Washington football team appealed, lost in federal district court and appealed to the Fourth Circuit. While that appeal is currently pending, the Washington team has asked the Supreme Court to intercede.

The Judges’ Score Card: Key Issues

The Slants, the Washington team and the Federal Circuit majority basically argue that trademarks equal free speech. They contend that Section 2(a) amounts to viewpoint discrimination and is subject to strict scrutiny  review, Section 2(a) fails to withstand “strict scrutiny” and is therefore unconstitutional. “Strict scrutiny” requires the USPTO to prove that Section 2(a) serves a compelling government interest, that it is narrowly tailored to achieve that interest, and that it is the least restrictive means for achieving that interest.

The USPTO, the two federal district courts, and the Federal Circuit’s dissenting opinion argue that trademarks do not equal free speech, and Section 2(a) is not subject to “strict scrutiny.” They contend that Section 2(a) does not prohibit any speech but instead denies the benefits of registration to private disparaging speech. In short, The Slants and the Washington team are entirely free to call themselves whatever they want, to publicize their names and use their names in commerce, but they are not entitled to the extra benefits conferred by federal trademark registration.

TKO or 12 Rounds?

While today’s grant of certiorari is only the beginning of the first round, recent Court decisions upholding hateful speech in other situations would tend to indicate that USPTO may be punching above its weight class and Section 2(a) might hit the canvas.

INITIAL CALL ON THE FIELD

In June 2014, the U.S. Patent and Trademark Office (USPTO) stripped the Washington Redskins (Washington) of their federal trademarks, finding the term “Redskins” was disparaging under Section 2(a) of the Lanham Act.

REPLAY OFFICIAL CONFIRMS THE CALL

Washington sought an instant replay before the District Court for the Eastern District of Virginia, but that Court affirmed the USPTO’s initial call.  Washington then sought a replay in the Fourth Circuit Court of Appeals, but this week, while that decision was under review, Washington threw a Hail Mary pass, asking the Supreme Court to intercede even before the Fourth Circuit decides Washington’s appeal.

WASHINGTON’S END AROUND

Washington’s unorthodox move is the result of another scrimmage — this one between the USPTO and the Portland dance-rock band, The Slants. As discussed in our prior post,  The Slants, a band comprised of Asian Americans, tried to register their name with the USPTO, but the USPTO refused, citing Section 2(a).  The Slants appealed the USPTO decision, lost at trial, but then won when the Federal Circuit reversed , finding that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

JOINING A GAME ALREADY IN PROGRESS

Last week the USPTO petitioned the Supreme Court to settle whether Section 2(a) violates the First Amendment. The thrust of the USPTO’s argument is that The Slants (and by extrapolation Washington) have free speech to call themselves whatever they want; the government is not stopping them.  They just aren’t entitled to “federal trademark registration,” i.e., a stamp of approval for their use of “disparaging” names.

So Washington’s latest play is essentially joining The Slants to pile on the USPTO and knock Section 2(a) out of the trademark registration game.

Nobody knows, and that’s why the United States Patent and Trademark Office (USPTO) just filed a petition asking Supreme Court to settle its turf battle with the Federal Circuit Court.

Ancient History: No Disparaging Trademarks

From WWII until March of this year, the USPTO routinely refused to issue trademarks that it considered to be disparaging under Section 2(a) of the Lanham Act.  So it wasn’t big news in 2011 when the USPTO summarily rejected Simon Shiao-Tam’s trademark registration for his rock band, “The Slants.” Mr. Tam appealed the USPTO’s decision to the Federal Circuit, which initially upheld the USPTO’s decision, but later agreed to rehear the appeal en banc.

Quantum Leap: First Amendment Trumps Lanham Act’s Prohibition of Disparaging Trademarks 

But, as we previously reported, it was huge news last December when the Federal Circuit reversed its earlier opinion and the USPTO’s decision and held that Section 2(a) violated the First Amendment, effectively stripping the USPTO of its power to deny trademarks that it deemed disparaging.   Presumably the court’s decision also strikes down Section 2(a)’s prohibition of marks that are immoral or scandalous.

Early last month, the USPTO reacted to the court’s decision, issuing guidelines that trademark applications with Section 2(a) issues would be held in limbo “while the constitutionality of these provisions remains in question…”  Shortly thereafter, Mr. Tam filed a writ of mandamus asking the Federal Circuit to force the USPTO to register The Slants trademark.

Breaking News: The Suspense was Killing the USPTO

The Federal Circuit denied the writ, but today the USPTO petitioned the Supreme Court to resolve:

Whether the disparagement provision in 15 U.S.C. 1052(a) is facially invalid under the Free Speech Clause of the First Amendment.

Usually issues percolate up slowly over the course of years before they reach the Supreme Court, but with the Federal Circuit insisting that Section 2(a) is unconstitutional and the USPTO refusing to cede its authority to reject disparaging trademarks there’s really no place else to take the issue.  And until the issue is ultimately resolved, trademarks that the USPTO considers disparaging will continue to sit in limbo.  Four of the justices will need to vote to hear the USPTO’s petition and, absent the extremely rare issuance of an extraordinary writ (allowing accelerated briefing and oral argument), even if the Supreme Court grants certiorari the matter won’t be decided for some time.

We recently wrote about In re Tam, the Federal Circuit Court’s decision invalidating Section 2(a) of the Lanham Act.  The Court held that Section 2(a), which precludes trademark registration of immoral, deceptive, scandalous or disparaging trademarks, violates the First Amendment.  The Court ruled for The Slants, a Portland-based band comprised of Asian Americans who had sought to trademark their name, but whose trademark application had been rejected by the U.S. Patent and Trademark Office (USPTO)  as “disparaging.”

The Court’s decision could have wider implications, especially with regards to the Washington Redskins’ appeal to regain their trademark, which is pending before the Fourth Circuit, a “sister” court to the Federal District Court. In December, Simon “Young” Tam (the Tam in In re Tam) wrote this blog post sharing his views about media coverage of the case, including the desire of the media (and attorneys) to compare the case to the Redskins’ case and issues surrounding identity politics. It’s definitely worth a read!

The USPTO Strikes Back, Sort of

In response to the In re Tam decision, last week the USPTO decided that it would put trademark applications with Section 2(a) issues in limbo.  The USPTO issued  Examination Guidance 01-16, which advised that “while the constitutionality of these provisions remains in question and subject to potential Supreme Court review” the USPTO will handle trademark applications with section 2(a) problems by issuing an “advisory refusal and suspend action on the application.”

The Slants’ Full Court Press

But The Slants aren’t willing to wait. Yesterday The Slants filed a writ of mandamus petition asking the Federal Circuit Court to order the USPTO to immediately process The Slants’ trademark registration.

The $64,000 question is whether the Federal Circuit Court will grant The Slants’ petition, rather than wait for the issue to percolate up to the Supreme Court. One Court observer  has noted that in recent years the Federal Circuit Court has become more aggressive about issuing such extraordinary relief.

Blog note: Photo updated 3/16/2016

Over the past year, debate regarding whether the National Football League’s Washington, D.C. franchise should continue to call itself the Redskins has risen to a fever pitch once again. So, naturally, it was big news when, on June 18, 2014, the USPTO’s Trademark Trial and Appeal Board (“TTAB”) issued a decision canceling the team’s six federal registrations for trademarks that include the term “Redskins.” As has been widely reported, the TTAB reasoned that the term “Redskins” was disparaging of Native Americans when the various marks were registered and should not receive federal trademark protection.

There is a great deal of confusion, however, regarding precisely what the TTAB’s decision means and what it does not mean. To help clear up some of this confusion, below are five important facts regarding the practical implications of the decision.

1) The Redskins’ Trademark Registrations Have Not Actually Been Canceled . . . Yet

The TTAB’s decision does not go into effect immediately. Its decision is subject to appeal to the United States District Court, and the team has already indicated that such an appeal will be forthcoming. The District Court’s decision, too, will be subject to appeal. As such, even if the TTAB’s decision ultimately stands, the case will not likely be final for several years. The registrations will remain “on the federal register of marks” and not be listed in the USPTO’s records as “cancelled” until after the case has made its way through the courts.

2) The Redskins Will Not Have to Change Their Name

Even if the TTAB’s decision stands, the Redskins will not be compelled to change the name of the franchise. The decision speaks only to the team’s right to register the “Redskins” mark, not to its right to use the name.

3) The Team Can Still Sue Those Who Infringe on the “Redskins” Mark

Should the Redskins ultimately lose their federal trademark registrations, they will not likely lose their ability to protect their exclusive use of the marks. Trademark rights in the United States come from use of a mark on or in conjunction with goods or services, not merely from the additional step of federal trademark registration. Indeed, this last step is optional.

Based on their longstanding use of the marks in question, the Redskins likely enjoy common law trademark rights independent of federal trademark registration. Should the team be stripped of federal registration, it could still pursue infringers through lawsuits based on these common law rights.

4) Lack of Registration Would Shift Burden of Proof in Infringement Suit

While the Redskins may still bring suit to enforce its common law trademark rights, losing its federal registrations will eliminate the presumptions of ownership and of a nationwide scope of rights that come with federally-registered trademarks. Common law trademark rights exist on a state-by-state basis. This means that the Redskins would have to establish the legitimacy of their common law rights to use the marks in every infringement suit they file. As discussed above, however, it is likely that the Redskins will have little difficulty in establishing the existence of such rights.

5) Lack of Registration Would Deprive the Redskins of Valuable Federal Enforcement

Where losing the registration of their trademarks has the greatest potential to harm the team is in the corresponding loss of the ability to record the registrations with the U.S. Customs and Border Patrol Service, which blocks importation of infringing or counterfeit goods. Without support of the Customs department, the market may be flooded with inexpensive Redskins gear.

To the extent that anything stemming from the TTAB decision puts practical pressure on the Redskins organization to change the team’s name, it would be the loss of merchandise revenue associated with the absence of Customs protection. The likelihood, however, is that the TTBA decision will have little practical impact on the ultimate outcome regarding whether the NFL’s Washington, D.C. franchise will continue calling itself the “Redskins.”

It seems like every week there is a new trademark dispute involving craft breweries.  One need only check Beerpulse or Brewbound, two popular beer industry sites, to see many posts about craft beer trademark disputes.  This is not surprising because the number of craft breweries has been growing at a phenomenal pace and is now at a record number.  As of June 2013, there were 2,538 breweries in the United States, a 25% increase since 2011 (there are now more than 2,700 estimated).  And the number of beer brands is growing even faster.  An article in DRAFT Magazine states that there are more than 12,000 beer brands registered with the United States Patent and Trade Mark Office (USPTO) and 45,000 wine and spirits trademark registrations.  That makes it very difficult to come up with an unique and distinctive mark.  Some beer brands like OL’ RED CEASE AND DESIST and REDACTED IPA are beers whose original names were changed to legal terms after a trademark dispute.

Brewery Fallout

What is a brewery to do?  Well breweries should, of course, do a careful search of other trademarks before launching a new brand.  They also might one to consider using a single unique “house” brand rather than having to come up with a new name for each style of beer that they produce.  Fortunately, the craft beer industry is very collegial and many disputes never end up in litigation or come to light in the news media because breweries have amicably settled their differences.  In an often cited instance of cooperation, Russian River Brewing of Santa Rosa, California and Avery Brewing of Boulder, Colorado both realized they had SALVATION brand beers and decided to make a blend of their beer, re-named COLLABORATION NOT LITIGATION ALE.  Of course, that’s not always a feasible solution, but Collaboration is reflective of the cooperative spirit that prevails in the industry.

Still, the number of disputes is on the rise and the trend will probably continue.  It may be time for the industry to consider some sort of industry-sponsored or industry-promoted alternative dispute resolution (ADR) procedure for these disputes.  For example, the Brewers Association might consider encouraging brewery members to submit disputes that cannot be initially resolved between the parties to mediation (such as to an  INTA International Trademark Association mediator) or to binding arbitration, or even create a beer industry panel to arbitrate such disputes.

By creating such a process, the beer industry could streamline the resolution of such disputes, reduce costs and get back to what it does best:  brew more beer.
(Eugene tweets on legal issues and news in the beer industry at @BeerAttorney.  He spoke on trademark law issues at the recent Craft Brewers Conference in Denver, Colorado).

The attorneys of Wendel Rosen’s Technology Practice Group have compiled this list of 10 common mistakes they’ve seen in the trenches. Smart companies will take the time to address these issues early in formation to prevent a future situation that could turn into a company killer.

1. Choosing the Wrong Type of Entity
A big decision prospective company founders face is determining the type of entity formation their company should take – a “C” corporation, an “S” corporation or a limited liability company (LLC). In a nutshell, LLCs and “S” corporations have significant tax advantages. However, “S” corps can offer only a single class of common stock. That eliminates them as an alternative for most fast-growing tech companies, since investors typically want a different class of stock than those desired by company founders and employees. LLCs can offer different classes of ownership interests. However, some investors dislike LLCs, because the company’s income and loss will be reported on the owners’ personal tax returns.  Many outside investors prefer “C” corporations. Therefore, the discussion generally starts with forming a “C” corporation and then explores whether the tax benefits of LLCs or “S” corps outweigh the presumption in favor of the “C” corporation. California companies with a social or environmental mission now have the option to become Benefit Corporations. While companies organized under the State’s general corporate law must consider solely the interests of shareholders in the profits of the business, Benefit Corporations must consider impacts on society, employees and the environment, as well as the interests of shareholders in profits, and may prioritize these at their discretion. For further reading on this type of entity, please visit http://bcorporation.net/publicpolicy.

2. Not Planning for Early Exits
What happens when one of a company’s founders decides to leave or the other founders decide they’ve had enough? The founder leaves (either willingly or unwillingly) while the other founders work 24/7 to make the company successful. And what happens to the founder’s stock?

Often, people don’t think about that scenario when they are launching their next great idea.
They think about it only when someone’s walking out the door. The remaining founders may resent the fact that while they are working hard, the person who left is still benefiting from their labor. Founders should discuss the possibility of an early split in the beginning. Clear shareholder agreements provide for various exit scenarios, including the remaining founders’ reserving an option to buy all or a portion of the original founder’s shares.

3. Not Documenting Stock and Equity Promises
Sometimes, company founders make vague promises to employees that they will receive a certain number of shares of stock or that they will get a “percentage” (e.g. 2%) of the company as an equity incentive. These promises are typically verbal or contained in an email without being very specific. The founder and the employee plan to work out the details in “paperwork” later.

“Doing the paperwork later” is a common source of problems in fast-growing tech companies. People are so busy that they postpone so-called nonessential paperwork. However, doing it later opens the door to disagreements over what was intended at the time the promise was made. If an employee was offered a set number of shares, what happens if many more shares are offered to investors in the interim? Should the employee’s number of shares be increased to the same percentage as would have existed at the earlier date? And, if the employee was offered a percentage of the company, is the number of shares calculated based on the number of shares outstanding when the offer was made or when the shares are ultimately issued? Moreover, if the value of the company has increased, then the price of the shares needs to reflect that increased
value. The shares can’t be offered at the original low bargain price without unfavorable tax
effects. For these reasons and others, when a young, fast-growing company wants to offer equity, it should have a written equity incentive plan and related contracts in place first.

4. Failing to Lock Up Trade Secrets
All too often, a business realizes it has trade secrets only after a former employee or potential investor starts using or disclosing the business’s proprietary information. By then, it may be too late. To protect its trade secrets, a business needs to develop, disclose and, most importantly, consistently execute policies to protect its trade secrets. To prevail in court, a business must prove that the alleged trade secrets are not readily available to others and that it took reasonable steps to protect the information. The courts look at what is reasonable under the circumstances.

For example, a court will require a greater effort by Apple regarding its marketing strategy for its next “i” product than it would for a venture capital company’s list of investors. Customer and prospect lists frequently spark trade secret disputes, because they are the lifeblood of almost every business. The simplest way to evaluate whether you have trade secrets that need protection is to ask yourself, “If some of our key employees left today and joined a competitor, is there any information they could take that would hurt my business?”

5. Carrying Inadequate (or No!) Insurance
Business is inherently unpredictable and risky. For example, it’s not unusual (although highly frustrating) to be sued – sometimes for a frivolous and baseless claim. You don’t want the first time you read the fine print of your insurance policy to be after you’ve been served with a notice of a pending lawsuit, only to find out that the claim is not covered.
Every company needs to assess its potential risks to make sure the more likely ones are covered. There are insurance policies for nearly every imaginably risk (although some of them may be cost-prohibitive), from your standard Commercial General Liability policy, Error & Omissions policy, Employment Practices Liability policy, and property insurance policies to policies for intellectual property claims, privacy claims, and loss of electronic data. And, of course, the amount of your coverage should be sufficient to allow you to carry on with continued operations.

6. Using Outdated Privacy Policies
Online privacy is an ever-shifting area. New laws are being proposed in both the U.S. and
abroad. The European Union is in the process of overhauling its privacy regulations, and Latin American countries are expected to follow. Scholars and policymakers are in dispute over the fundamental theoretical framework for the regulation of online privacy issues. Emerging technology changes the way companies collect and use data, with new uses cropping up constantly – both online and through mobile apps. Against this backdrop, does your company have an adequate – and updated – privacy policy and privacy notice? Transparent and detailed notices and policies should be the starting point for all businesses that handle and collect private data.

7. Not Getting Written Assignments of Intellectual Property Rights
Intellectual property rights are the key assets for most new technology companies, but often young companies fail to secure rights in IP.  An assignment of copyright or patent rights must be in writing, not an oral agreement. Work product, such as software code created by an independent contractor, may not qualify as a “work for hire” under the federal Copyright Act. Assignments of trademarks must also include an assignment of the goodwill associated with the mark. In addition, company founders or early employees often register domain names, blogs and social media accounts in their own names; these should be transferred to the company.

8. Failing to Register Patents, Trademarks and Copyrights
Along the same lines, emerging companies often put off or delay applying for registrations for patents, trademarks, and copyrights in order to save a bit of money. For patents, this can be fatal due to the “one-year bar” requiring an application be filed within one year of public use, sale, offer to sell, or description of the invention in a published document. For copyrights, failure to register may prevent one from obtaining certain remedies in court, like statutory damages and fees. For trademarks, one advantage of registration is that it establishes nationwide constructive notice of the mark, even if a company has not yet used its mark in every state.

9. Treating Social Media as the Wild West
Social media sites, such as Facebook, LinkedIn and Google+, present new challenges to
companies in terms of marketing issues, intellectual property protection, and employee confidentiality and privacy. Too often, however, companies have few guidelines for monitoring use of their intellectual property on such sites or employee usage of social media. These issues confront both established and emerging companies, but emerging companies need to be particularly mindful of such issues, as they may not have the resources to litigate disputes. It’s a good practice to establish and follow a formal social media policy.

10. Mismanaging an International Launch
Today, emerging companies are often ready to immediately offer goods and service to foreign markets. Too often, however, they are not ready or have not researched how to deal with the laws and regulations of foreign countries. For example, as noted above, European privacy and data protection laws differ markedly from U.S. laws and are continually evolving. An emerging company that collects certain consumer information from consumers living abroad must be mindful of these differences.

As you can see, there are a number of challenges companies need to anticipate. With a little forethought and preparation, you can make sure your company avoids some of these costly ones.