Cannabis IP Remedies: Erie-ly Familiar, Patently Different

If you’re familiar with my writing, you probably expect (or dread) an anecdotal segue to basic policy concerns of intellectual property law. Perhaps fortunately, I don’t have an anecdote for patent infringement. Apparently it’s not the sort of thing that pops up for most people. Put simply, a patent can be described as a contract with the government where the inventor exchanges information for certain temporary, but exclusive, rights. Infringement is when someone uses those rights without your permission. Now, assume you have a patent on a cannabis-related invention. If someone else begins to exercise your exclusive rights (“practice” your patent), what are your options?

First of all, you’d expect the court would make the infringer stop practicing your invention. Second, and probably more important, you would seek out some recompense for the ways in which their infringement has cost you. The reimbursement you seek can be in the form of compensation for lost sales profits, price erosion from the added market supply, increased expenses you experienced, or the profits that an infringer made as a result of taking advantage of your invention. Although the award cannot be more than what the presumed infringer would have paid in a “reasonable royalty” to legally practice your patent, there is the possible availability of treble damages. But what if the defense is that those profits were neither possible, nor could be related to the patent infringement because the practice of that patent was federally illegal?

This is going to get complicated. How the individual branches of government interact, much less federal and state laws, and where any of that authority begins or ends is something even our top officials often disagree on. I’m assuming that in order to practice this hypothetical patent, the Controlled Substance Act (CSA) would be violated either through the production or possession of cannabis. Furthermore, I am assuming that in the given state, that very same production or possession is legal under state law.

Now, every law student has drilled into them the rule that federal courts are courts of limited jurisdiction. In short, if the power to adjudicate a dispute is not explicitly granted to federal courts, those courts have no power to rule over the case. A flipside to this is that certain issues are exclusively under the jurisdiction of federal courts. Because of Article 1, Section 8, Clause 8 of the Constitution, patents are issued by the federal government and the jurisdiction to decide patent cases is held solely by federal courts. However, state courts can have jurisdiction over non-patent claims, such as a licensing contract, that raise patent “issues” and decide those issues.

For the next bit we need to be clear on common law. Common law emerges when the application of a law is unclear and a court must interpret how it would or should apply. Judges must suspend personal beliefs and follow statutes as the legislation intended, even if those judges disagree with the legislative policies or goals. In fact, if a judge has the rare opportunity to clarify a legal rule, she is on extremely dangerous ground because she is likely an unelected public official who now needs to write a bit into the rule herself. Of course, we can always pass legislation to correct for any egregious interpretations. Common law can become confusing because terms of art in one state may have different meanings in a sister state, perhaps most familiar is the availability of common law marriage in some – but not all – states.

In Erie Railroad co. v. Tompkins Justice Brandeis wrote the Supreme Court holding that clarified the role of common law in our split federal and state systems. Basically, it would be pretty strange for federal courts to develop their own guideline definitions of terms of art and then apply them to states whose courts could have conflicting definitions. Arguably, litigants could then “shop” between federal and state systems for more favorable common law. Also, a federal court explaining to a state how that state’s own laws are applied is not reasonable. Essentially, after the decision in Erie, when a federal court applies state law it follows the common law of that state.

There remains federal common law in a few specific areas, such as when the rights or duties of the United States are in question. Federal common law can also be found where a statute explicitly calls for it, or even implies it – such as when a court has exclusive jurisdiction and there is a need for common law in that field. (Exclusively federal legislation exists in the areas of maritime law, bankruptcy law, and, of course, patent law, among others).

A state court deciding cannabis patent “issues” faces a small dilemma if the practice of that patent is legal under state law but not under federal law. The court could apply state law to the practice of the patent, federal law to the infringement, and avoid any conflict. Alternatively, a state court could look to the CSA. A state court applying federal law has been described as reverse- and scholars argue that supremacy usually dictates that federal law applies.

The language of the CSA can be read to address this situation, clarifying in section 708 that there is no “intent on the part of the Congress to occupy the field . . . including criminal penalties, to the exclusion of any State law . . . which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and that State law so that the two cannot consistently stand together.” (emphasis added). “Occupying the field” is when a federal law either explicitly or presumptively (by being exhaustive) leaves no room on the legal “field” for state law. Since the CSA explicitly does not occupy the field, a state court would have to resolve whether or not state cannabis laws is able to consistently stand with the CSA.

The Supreme Court has held that “[d]isplacement [of state law] will occur only where . . . a ‘significant conflict’ exists between an identifiable ‘federal policy or interest and the operation of state law,’ [Wallis], or the application of state law would “frustrate specific objectives” of federal legislation, [Kimbell Foods].” (citations shortened). In rare cases, such as where federal law (in this case, the CSA) conflicts with various state approaches to cannabis but the goals of the federal law (as outlined by the Cole memo) do not conflict with state goals, a court might be able to choose. A state court could hold that so long as the legislative goals and policies of the state’s cannabis statutes align with the Cole memo there is no conflict at all.

A state court looking to federal law that their own legislation has specifically chosen not to enforce would be working against the public policy of their own state. One reason a state court might take that course is to avoid validating a state law that is invalid under the federal scheme (we have seen the legal inverse of this strategy). I think a state court both would not and should not tackle such an issue from the perspective of federal interests when explicitly stated federal policy and goals do not conflict with that state’s interests and goals. Ultimately, the judicial branch can take the executive branch at its word and, failing to see a conflict, resolve any patent issues.

On the other hand, a federal court can simply look to the CSA, note the illegality of practicing the patent, and end the suit there.   A federal court might also try a few other approaches. Can—and, more importantly, should–a federal court grant validity to a patent claim and give full enforcement of that patent when doing so would at least tangentially condone a violation of a separate federal law?

As I theorized about trademarks, a weighing of policy interests of the federal government and state governments can bring resolution to apparently contradictory stances with regard to the legality of a Schedule I substance. However, this is difficult to apply to a case where the federal courts not only have exclusive jurisdiction but where they must apply federal law because federal patent law is the only patent law in the United States. For a federal court to apply state law with regard to CSA issues raised by parties would arguably be an arbitrary refusal to apply federal law and, unlike a state court, allow a precedent that could give inconsistent judgments in states with differing cannabis laws.

I think the best resolution to this is the Federal Circuit developing a little nuance to the Erie doctrine. When a federal statute facially conflicts with state law, the court should look at the underlying goals and policies of the conflicting legislation. If there is no conflict in the goals and policies then a federal court should give deference to the state law. It makes a lot of sense to regulate activity within a state the way that state does. To quote Justice Brandeis’ dissent in another Supreme Court case: “It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” While Nebraska and Oklahoma disagree with that last point, it has yet to be resolved.

With this approach, a court could have conflicting results in cases, but in those cases the court could point to conflicting state laws. There is no need to resolve what one state allows and another does not – that is a state’s prerogative. This is simple and arguably adheres to Erie, but it appears to ignore supremacy. But just as the Cole memo was a shift from the “original” Cole memo, which in turn was a clarification on the Ogden memo, goals and policies change. Everything changes. Any analysis by a court that relies on current goals and policies set forth by the government would be overturned by an explicit change in those goals and policies. This functions exactly as a legislative response to a “wrong” interpretation, mentioned above, and is exactly how a government built on checks and balances is supposed to function.

Finally, there is one other approach a state or federal court might employ to this conflict: ignore it. Common law systems function by precedent. In other legal systems, precedent does not have the same level of authority to influence or dictate the same interpretation to other courts. Our courts are cautious because of the danger of a precedent having unknown, perhaps negative, effects. It may not always seem like it, but the legislative process is exhaustive, with analysis, discussion, and debate by elected officials trying to do what is best for the general populace and their constituents – not a decision by a single person in response to a very specific dispute. Because of this difference, Courts have developed a long tradition of answering questions in the narrowest possible way to avoid the creation of common law that is not necessary to answer the specific question that court is faced with, so it is entirely believable that the Federal Circuit will rule on an infringement of a patent without addressing the legality of the practice of that patent.

If you remember the litigation over Proposition 8 in California, you may recall the Supreme Court holding on “standing” and nothing else. Essentially, if California itself did not want to defend the constitutionality of its laws then some other party cannot step in and defend the laws for that state’s government. This was a convenient way to avoid holding on the extremely divisive debate over gay marriage, but also an interesting precedent in its own right. No party other than a prosecutor has the standing to charge someone with a violation of federal law. The enforcement of federal laws, just as the defense of the constitutionality of those laws, is the role of the executive branch. Any argument that infringement damages are unobtainable because the practice of a patent violates the CSA is an argument that a federal prosecutor should raise, not a defendant in a patent suit.

The beauty of this approach is that it affords courts with an avenue to avoid answering the (unraised) question of the conflict between state cannabis law and the CSA, and thus avoid setting any precedent in that area. Additionally, as Lord Mansfield famously wrote, certain defenses sound “at all times very ill in the mouth of the defendant.” While a defendant can sometimes use illegality of behavior as a defense, it is not that the defendant is being protected, but that the plaintiff has no legitimate, or legal, cause of action in the first place. As Mansfield eloquently continues: “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.” Courts of all stripes may very well consider a CSA violation defense in a patent case a flimsy attempt at getting away with blatantly profiting from another’s intellectual property and happily address the sole issue of theft.

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One response to “Cannabis IP Remedies: Erie-ly Familiar, Patently Different

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