High-P: Some thoughts on IP in the budding North American cannabis market

High-P: Some thoughts on IP in the budding North American cannabis market

The lay of the land: Cannabis, the law, and IP

In Frances Ford Coppola’s 1972 epic The Godfather, Don Vito Corleone turns down an investment opportunity from the cunning and opportunistic drug baron Virgil Sollozzo, with Vito telling him that while, ‘It doesn’t make any difference to me what a man does for a living […] drugs is a dirty business.’ Though drugs may indeed be dirty business, when it comes to cannabis, cannabis is not only big business but, increasingly, legal business. In October 2018, Canada legalised at a federal level the recreational cannabis trade in its Cannabis Act 2018, and recently enshrined into law additional Regulations, set to come into force on 16 December 2019, legalising the production and sale of cannabis-based products including edibles. While U.S. Federal law prohibits the sale and possession of cannabis, provisions of state law mean that regulated legal cannabis in the United States is now the rule rather than the exception. Only three of fifty states (Idaho, South Dakota and Nebraska) prohibit in criminal law recreational and medicinal cannabis, the remaining forty-seven either permitting one or the other, with ten states from Washington to Vermont permitting both. In the U.K., cannabis remains a Class C controlled substance, yet political parties including the Liberal Democrats and Greens have both made manifesto commitments to the legalisation of recreational cannabis.

Though in many ways taboo, the nascent market for legal cannabis in North America is just like any other, with intellectual property (“IP”) playing a key role in driving business innovation and market expansion. However, as it underpins a highly regulated product still emerging from the shadows of the black market, IP plays a uniquely vexed role in powering the markets in the Canada and United States.

Cannabis in the courtroom: Patents

Surprising though it may seem, a wide array of products and processes related to cannabis are patentable, and companies north and south of the Canadian border have begun the patenting drive.

Though their specific regulatory requirements differ, a method or product in both Canada and the U.S. fulfils the usual patenting requirements if it is (i) novel, (ii) useful, (iii) non-obvious, and (iv) constitutes patentable subject matter (for example, it is not an abstract idea, mental process, or naturally-occurring phenomena). Once granted, a patent gives its holder a monopoly over the patent subject matter for a period of twenty years from its filing.

Being naturally-occurring phenomena, cannabis may seem unpatentable. However, countless aspects of the processes surrounding the cultivation and production of cannabis are patentable: as Bereskin and Parr LLP has noted, processes including the isolation of novel cannabinoids and synthetization of specific active agents can be patented. The novel integration of cannabis into other products is also patentable: patents featuring cannabis have been granted for products including alcoholic drinks (US Patent No. 10,085,965) and milk (US Patent No. 10,028,987).

However, despite offering legal and commercial protection, patents inevitably carry the risk of litigation. In this respect, the patents surrounding cannabis are no different to those for any other products.

Legal history was made in July 2018 when, for the first time ever, a cannabis product featured as the subject of patent litigation. In the U.S. District Court for Colorado, the biotechnology firm United Cannabis Corporation (“UCANN”) filed a lawsuit against cannabis retailer Pure Hemp Inc. alleging infringement of its U.S. Patent No. 9,730,911. In a first hearing on 17 April 2019, the District Court dismissed an attempt by Pure Hemp to bring the case to an early conclusion via a summary judgment, rejecting Pure Hemp’s motion that UCANN’s patent in fact constituted unpatentable subject matter, and finding that the patent is not a naturally occurring product of nature. The action is ongoing, and only time will tell whether Pure Hemp has in fact infringed UCANN’s patent.

When it comes to the generation of new technology and associated IP, patent litigation for tech firms is an occupational hazard, and it is impossible to eliminate completely the risk of competitors’ litigiousness. However, any inventor and filer of patents, including one in the cannabis industry, can take steps to minimise the risk surrounding patent litigation.

One method is to conduct robust freedom-to-operate (“FTO”) searches when applying for patents. Best conducted by expert third parties, such as patent attorneys, FTO searches give tech developers crucial information not only on the uniqueness of their invention, and therefore its vulnerability to legal challenge, but also provides invaluable intel on the R&D activities of competitors.

 

‘Ssssssh!’ Keeping it secret

Another method, and one surprisingly under-represented in the commentary on cannabis IP, is to protect patentable subject matter via trade secrets.

A trade secret is information crucial to a company’s competitive advantage, which is valuable by virtue of being confidential: inventions from crucial software source code to the highly confidential recipes of popular soft drinks are widely protected by trade secrets. By designating information as trade secrets rather than applying for patents, tech developers acquire the commercial advantage of never having to publicly disclose the makeup of its invention. Moreover, as trade secrets, unlike patents, do not lose their monopolising quality after a given time period (i.e. the 20 years of the patent), their commercial value can, in theory, live on indefinitely.

However, this strategy carries its own risks, as the effective utilisation of trade secrets demands establishing extremely tight internal procedures, best articulated via a trade secrets policy, which precisely sets out the developer’s strategic aims regarding the invention and how they seek to protect and manage this vital information, internally and externally.

 

To harvest or not to harvest: Branding, its challenges, and customer data

In this era of new digital media and unprecedented interconnectivity, the role of strong branding in the commercialisation of products has never been more important. IP plays a key role in branding, giving brand developers the formal legal protection of trade marks and the informal legal protection of rights in goodwill.

On one level, branding is uniquely important for the sellers of new cannabis products in attracting and retaining new customers. Branding is the primary method new cannabis companies can utilise to bring the product out of the shadows of the black market, differentiating their products from existing, cheaper, and illicit alternatives.

Strict regulations surrounding the sale and marketing of cannabis, however, present unparalleled challenges for anyone seeking to brand cannabis products. As it remains a Schedule I classified drug under the federal Controlled Substances Act 1970, cannabis is ineligible for trade mark protection in the United States. As Section 7 of Canada’s Cannabis Act 2018 designates the Act’s purpose as to ‘protect public health and public safety’, it provides extensive regulations on the promotion, packaging and labelling of cannabis products: prohibited marketing activities include the depictions of people, characters and animals; testimonials and endorsements; and, perhaps most restrictively, any advertising that ‘evokes a positive or negative emotion about a way of life’.

Necessity is the mother of invention, and ingenious marketers will always (try to) find ways to establish brands, and thus IP, despite these regulations. However, even within these stringent legal frameworks, there remains immense capacity to generate valuable IP.

In 2017, the Economist famously described data as the ‘oil of the digital era’. Assessing the market for regulated cannabis in Canada, Deloitte is unequivocal in predicting that firms invested in harvesting customer data for the purpose of discerning key insights will make ‘faster, smarter business decisions’, and ‘anticipate and respond to consumer behaviours and preferences nimbly and effectively’.

as the market for cannabis presents unique challenges for establishing brands, then, it demonstrates precisely the same trend facing any marketer in the digital age: customer data, and consumer-driven analytics, are essential for business success.

While the regulatory restrictions on promoting cannabis present unique challenges for developing a brand presence, producers and sellers nevertheless have the opportunity, like any marketer in the digital age, to harvest customer data. Those that recognise that invaluable consumer insights and data represent critical IP, particularly in the absence of a total freedom to brand-build, will inevitably pull ahead of the pack, and respond faster and more effectively to consumer trends and behaviours.

 

High times

Maybe Cypress Hill were right: more than just a powerful potion, cannabis is the site of explosive and highly exciting commercial creativity in newly-regulated North American markets. We will continue to monitor with interest how the IP in these exciting markets continues to develop.

This article is for your information only. It does not constitute legal advice, and you should not rely on, or take any action based on, the information it contains.

 

Author: Ryan Diamond, Junior Analyst

Email: Ryan@metispartners.com

Tel: +44 (0)141 353 3011

 

 

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