Author Archives: Forest

Licensing High Technology; Cannabis and Corporations

In a recent and excellent blog post, Jeff Madrak, a colleague of mine, addressed the current growth of “Big Marijuana.” The trick is lots of water and sunlight, but mostly it is careful adherence to the law. Cannabis’s legal status is a figurative hydra; ask a question about protecting children and you find yourself having to answer what harms current prohibition has and the long term effects of that regime; ask about taxing cannabis, and then you’re raising questions about specific tax types and similar industry approaches; and so on. Similarly, for every clever business strategy and solution, for every big picture analysis raised by that post, I found myself wondering about the policies served – if such solutions are “good” in more than a business sense, if society should punish or reward these “ganjapreneurs.”

Tackling that hydra is a task that is literally Herculean. This is cold comfort for business people, because business thrives best when the legal framework is well developed: such a framework reduces uncertainty, which reduces risk, and lower risk means greater long term return on investment. I want to address what I found to be a surprising result and a happy coincidence of law: namely the interaction of licensing intellectual property and the legal fiction of the corporate form.

An industry built on cannabis cannot operate on an interstate market without violating federal law and policy. Note the Cole Memo priority of “[p]reventing the diversion of marijuana from states where it is legal under state law in some form to other states” is facially violated even if marijuana is legal in those other states. Interstate commerce is the prerogative of the federal government, so Big Marijuana is restricted to operating on a state by state basis. However, the intangible nature of intellectual property and the economic convenience of the corporate form can provide an avenue between states that is already being explored by some.

The corporate form. It already sounds like a flimsy pretense, a phrase someone might casually drop as a parenthetical at a cocktail party and be met by a collective eye rolling of all within earshot. These days, the idea of the corporate identity is not only much more prevalent in the social dialogue but it is also more akin to an incantation. It is some sort of legal witchcraft, seeming to afford businesses protections traditionally reserved for actual people. I certainly have a degree of initial discomfort with corporate personhood.

Which isn’t to say there are not benefits to allocating personhood to a corporation. Probably the best justification for identifying a corporation as a legal individual is the allocation of liability. For one thing, investors are protected from personal liability, which promotes risk taking and innovation. Additionally, anyone harmed by the activities of a corporation can name this identity as a defendant in a court of law. In fact, a “person” can sue another “person” so long as they have standing. Standing is basically when one person has an injury that another person caused and the courts can give a remedy to, like Apple v. Samsung.

Legal personhood could also be applied to resolving unusual problems, such as an endangered animal being granted personhood via statute, allowing others to sue “someone” on behalf of that animal if that “someone” poses a threat to them or their habitat. While it has been indicated as possible for congress to grant such standing (an extraordinary step, indeed), courts have rejected standing for cetaceans, and declined to address the standing of sea turtles and birds. Not to digress too far into the realm of the Lorax, what is pertinent here is that our legal system defines “person” in a precise and artificial way to enforce certain rights and responsibilities.

Corporate persons generally have residency where they are incorporated. This is another convenience because courts are able to discern what laws apply to that corporation, and corporations are able to determine which state gets their taxes. Cannabis’ current legal hodgepodge makes this particular simplification incredibly useful. A business can very specifically choose a single state and act within those borders in both a literal and transparently legal sense. This distinction not only allows businesses to choose their laws, it also allows businesses to limit the federal illegality of their endeavors.

The California Artisan Cannabis initiative provides that “[a] person who is not a California resident, or not incorporated in California, shall not be qualified for a [cannabis] license.” (emphasis added). So the legal form, in this specific case, allows the legal cannabis market to thrive while limiting the breaking of federal laws, and promotes state self-governance. Finally, it keeps all of the profits and commerce contained within state limits, thus minimizing the effect of state legalization on neighboring states.

This raises the issue of licensing agreements between corporations in different states. Do such agreements subvert the policies and priorities of the individual states and the federal government, or do they, like the corporate form, actually work to preserve what few clear lines exist in the current legal schema? It is most likely that licensing agreements do neither of those things, but they do allow businesses to continue to flourish and to set up strategically for any potential federal-level changes in the legality of cannabis.

Intellectual property comes in various flavors, but is generally understood to refer to the protection of a particular expression of an idea. Intellectual property law is also often under the jurisdiction of the federal government, which, given the apparent contradictions between federal and state law, can lead to some interesting legal dilemmas. Licensing, however, affords private parties simple and interesting solutions to these problems.

Intellectual property is intangible. When you license someone to use it, you transfer legal rights, not an actual object. Normally a sale between a business in one state and a business in another state would be interstate commerce. Does a license to use a particular expression of an idea qualify as a transfer between state lines? Generally, no.

Without getting too silly, intangible properties, like debt, have no real location and so they are not physically transferred from one place to another. This legal technicality is important because the federal government only has jurisdiction over interstate commerce. In U.S. v. Lopez a federal statute barring guns from public schools was deemed unconstitutional and later had to be rewritten to include only those guns that have “moved in or that otherwise affect[] interstate or foreign commerce.”

Often, licensing will have territorial restrictions. With the current legal classification of cannabis, this is not only desirable and probably legally necessary for business, it also serves the voters’ preferences in determining the legality of cannabis for their state. Common intellectual property licensing practices come with various pros and cons.

What is interesting to this discussion is the availability of arbitration and non-assertion clauses, and the antitrust considerations raised by the latter. Arbitration agreements are a way to provide legally binding resolutions to any disputes that arise. They are wonderful because they avoid the public costs of a court, the individual costs of an attorney, and because they are not part of the court system they can be much more efficient, quick, and accessible to the poor. Of course, the flipside is that there are no fairness guarantees, appealing a decision is difficult, one party often has much more bargaining power and influence in the choice of arbiter (you’re probably bound to one with your credit card, your cell phone, your car, and so on), among other concerns. The primary focus of these concerns relates to labor agreements, or the protection of unsuspecting consumers.

I assume these business licenses are conducted by corporations that are legally savvy and cooperative, so many of those concerns are not present. Which is to say, arbitration agreements would largely function to save taxpayer money by keeping inter-business disputes out of the courts. An additional benefit of keeping disputes out of the courts is that courts would not have to weigh in on the divisive political debate over the legality of cannabis, arguably outside the purview of the court since strategy on how to enforce federal law is up to the executive branch.

Similarly a non-assertion agreement is a contract to not sue over certain property right infringements (often as part of a settlement in an infringement claim). This serves much of the previously mentioned arbitration benefits by keeping such controversies out of court but raises different concerns. Patents, specifically, grant a temporary monopoly on an invention and the dangers of monopolies have long been recognized. A non-assertion agreement can lead to a small group of businesses acting as an oligarchy by contract. Further, such an agreement potentially protects invalid patents from being challenged by competitors – certainly not a win for society since we prefer the full use of ideas in the public domain.

In conclusion, it appears that the legal technicalities of how corporations exist as entities and the intangible nature of intellectual property actually serves to avoid many of the legal problems surrounding cannabis.   While my initial impression was that corporations could use legal maneuvers to essentially be an interstate cannabis operation, the actuality is that these legal hoops need to be jumped through and actually function as further restrictions on interstate commerce for Big Cannabis.

Additionally it would be wrong to condemn a business for working within the existing legal framework. Furthermore, if they were trying to abuse that framework, courts are equipped to see through manipulations of the corporate form. Through these legal fictions, society is served by confining cannabis commerce to those states that wish to allow it without violating federal law and also potentially without placing unreasonable burdens on the judicial system.

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.

State Registered Cannabis Trademarks: (An) Amoral Dilemma

I called my mother the other day. I figured that, as an adult, it was time we had the talk; I asked her what she thought a trademark was. “It means,” she said, “that nobody else can use the same thing.” Sure, but why would we have laws about that? “Because… oh I don’t know, because somebody cares.” After some discussion, it became clear that my mother had both a normal level of interest in Intellectual Property law and held a common misconception. My mother was under the impression that trademark law is for the benefit of corporations.

Because our government is “for the people,” it follows naturally that trademarks are also for the people. In a previous post I wrote that the government grants exclusive rights if some important public good is served. The exclusive use of a mark is not protected for the sake of business but for the sake of the consumer. This information is invaluable to consumers because it allows us to choose between spending our dollars on local, sustainable, organic, humane farmers and butchers and more affordable alternatives with a glance at a package. Thus, when you go out and purchase some first-rate dance gear the branding lets you know the source. When you’re stuck in the middle of Nowhere, Oklahoma, you can rest assured that your can with the familiar Coca-Cola trademark is still a Coke™ because of trademark law.

A corporation can build goodwill and leverage its reputation to add value to its products. If a consumer knows nothing about watches, it’s possible they may be led to believe a Rolex is a good watch because of Rolex’s reputation. While trademarks may serve a corporation’s financial interest, keep in mind that a bad reputation is equally protected. What we, the people, get out of enforcing marks is clear identification of the source of goods. The quality of that source, or its “branding,” is not part of the deal. There are a number of reasons that the USPTO might deny a trademark, but the “morality clause” is most pertinent to marks related to cannabis.

The Lanham Act, the federal level statutory scheme for trademarks, has a “morality clause.”  In the language of section 1052(a), any mark that is “immoral, deceptive, or scandalous matter” can be denied registration. A deceptive mark clearly undermines the goal of keeping the consumer properly informed as to source. This means marks that misrepresent not only the company name but also geographic source, material composition, or sponsorship of some individual, etc. would be considered deceptive and denied registration.

When it comes to scandalous material, an examiner might “know it” simply when they “see it,” in the manner of Justice Stewart’s famous intuitive approach. A morality judgment is treacherous territory, doubly so with the weight of law behind it. It is no surprise that courts have, as the trademark manual of examining procedure puts it, “included immoral matter in the same category as scandalous matter.” Inevitably, scandalousness and immorality judgments will lead to disagreement, and such a subjective standard is not, in my opinion, useful legislative drafting. Retooling the language is probably best, but that is a legislative prerogative, not the purview of lawyers or courts. For a thorough examination of scandalousness and the caprice of the USPTO, I recommend an excellent (and often amusing) journal article by Anne Gilson LaLonde and Jerome Gilson (for those in the know, yes, those Gilsons). Generally, drug-related marks are denied for scandalousness because of the promotion or association with illegal substances under the Controlled Substances Act. There are some cases, like Cocaine Anonymous (note the circled R indicating a registered mark – not “™” which is for unregistered marks) or Marijuana Symposium, where the context specific use is considered within the gamut of federal drug policy. There are ways around USPTO difficulties with trademarking cannabis products, but I think the apparent contradictions in whether a mark is granted or not can be resolved in a different way, without upsetting the status quo.

See, you can also register a trademark at the state level. The Lanham Act, as mentioned, is the federal scheme. Each state has its own version of the Lanham Act that will give statewide trademark protection. Given the patchwork legal status of cannabis in the United States, a state-by-state approach makes a lot of sense. Unfortunately, the statutory language of 47 of those states replicates the morality clause from the Lanham Act verbatim (for a full list check out footnote 3 in the Gilson article). It’s easier to list the outlying states Colorado, Maine, and Wisconsin — than the majority. Of these, Maine comes the closest to a morality clause, denying any mark that “[c]onsists of or comprises language that is obscene, contemptuous, profane or prejudicial… [or i]nappropriately promotes abusive or unlawful activity” (emphasis added). Setting aside Maine’s oddly detailed trademark legislation on potatoes, oils, and sardines, could a mark for a company whose product is cannabis be an “appropriate” promotion of a federally unlawful activity? I think so.

In a state with a morality clause in its trademark statute (like California), is it scandalous to identify a good that is legal in that state but remains illegal under federal law? My answer looks to the late, great, Judge Traynor. In one of his more famous opinions, Reich v. Purcell, Judge Traynor discusses how the “forum must search to find the proper law to apply based upon the interests of the litigants and the involved states.” Judge Traynor was deciding a conflict of laws problem in torts, but his reasoning can be applied here. More succinctly, scandalousness and morality rejections should be based on the weighed interests of the state and federal governments, not a subjective interpretation of those words as applied to a “substantial composite of the general public.”

In a state where cannabis is totally decriminalized, regulated by the state or where the state participates in the market, the public view about offensiveness of a mark is difficult to ascertain.  While some groups will surely find no moral/scandal objection to cannabis marks, other groups may find cannabis use scandalous but consider regulation a better solution than outright prohibition.  Additionally, the minority may still prefer prohibition and retain scandalousness objections to any cannabis related mark. While scandalousness objections to trademark registration perhaps cannot be resolved, there remain amoral public interest considerations.  A given state’s interests and the effects of granting a trademark in that state should be weighed against the interest of the federal government, especially noting that whole supremacy thing. If a state grants cannabis trademarks and, by extension, allows for companies to potentially build goodwill and brand loyalty, will that promote the use of cannabis?  Will branding push companies to cultivate a more positive reputation through higher quality products, or safer products and safer use environments?

Further, while the public’s subjective reasoning cannot be ascertained, the codified policy (in this hypothetical) would be one that does not criminalize cannabis. Examiners and their supervisors could decide trademark eligibility by looking to established interests instead of subjective review of “scandal.” Admittedly, changing from “scandal” to “public interest” analysis sounds like jumping out of the bog and into the mire. I think that however scandalized someone feels (or doesn’t) about the Redskins trademark, he or she can concede that our public interest has long proscribed racism, prioritized eliminating discrimination, and promoted equality. Revoking the Redskins trademark arguably serves those ends. This approach also clears up how the USPTO ultimately granted a trademark to an apparently scandalous mark. An image that may scandalize the public by depicting our nation’s flag as a condom was acceptable because of the goal of characterizing the fight against AIDS as patriotic.

Luckily, the interests of the federal government have been clearly set forth in the somewhat notorious Cole memo. The eight priorities listed in that memo can easily be satisfied while serving state interests. A state can serve its own decriminalization regime without subverting these priorities, which explains how a mark can be “scandalous” on a federal level but not in a particular state. Further, the federal government has an interest in allowing states to establish their own unique priorities and policies. This “laboratory of democracy” that respects the individualized needs of specific regions is part of why we have a federal system in the first place. The real question then becomes whether granting trademarks serves a given state’s interest.

Among many details I have glossed over, there is a third option for trademarking: simple use of a mark in commerce grants common law protections without any registration at all, state or federal. This protection is limited to the geographic region of use and depends on common law, which varies by state. California is geographically large and if the consumer is to develop some sense of cannabis products, simple common law protection is assumed not to suffice because a northern California company could use the same mark as a company elsewhere in the state and potentially confuse consumers in between, especially if the market expands rapidly, as it has in Colorado.

If a company cannot build goodwill with its brand it can only really market objectively measurable characteristics like potency and price, not quality. Research indicates that price increases discourage kids from using cannabis more than adults. Granting trademarks would allow corporations to more fully leverage their brand, which would increase pricing of their products – and might decrease potential youth possession and use (which would assuredly remain illegal, just as it is for tobacco or alcohol). There are, of course, risks associated with allowing marks that may be targeted at or appealing to children. An interest analysis supports denial of those types of marks as well, since protecting children is an established interest of both the states and the federal government.

California’s interest might best be served with a model like that of wine, where users of cannabis can pay top dollar for some renowned brand rather than merely finding the cheapest and strongest “high” on the market. Trademark granting should not be based on ambiguous ideas like moral and scandal but on the purposes behind trademarks, which rest on the interests of the individual consumers and states involved.

Cannabis: Patently Useless?

Not too long ago I was at a party where an acquaintance, upon hearing that I was studying intellectual property in law school, addressed me with a slightly tipsy and decidedly confrontational “you can’t own ideas, man!”  At the time, I just smiled and prevaricated.  It is true, though.  You cannot own ideas.  Intellectual property law is built on that very concept.  There are some fine distinctions and clarifications, and certainly some gray area, but that’s the lawyer’s bread and butter.  Intellectual property is like a contract with the government, and all contracts require both sides to gain something (‘consideration’).  The commonwealth has generally concluded that there are certain protections worth granting for the greater public good and this is where a debate on the merits of intellectual property finds footing.  We should ask what, exactly, do the rest of us get out of affording some entity protection of their copyright, trademark, trade secret, or patent?

A patent, for example, gives the inventor a few temporary rights, essentially to exclude others from making, using, selling, and importing the invention in the United States.  Thomas Jefferson wrote that “the exclusive right to invention [i]s given not of natural right, but for the benefit of society” and highlighted “the difficulty of drawing a line between the things which are worth to the public the embarrassment of an exclusive patent, and those which are not.”  Exclusive rights grant a monopoly of sorts, and a government-protected monopoly without a very important public interest being served would be embarrassing.  For example, the Post Office is a monopoly that serves the commonwealth’s need for delivery of mail.  But what concomitant need does granting a patent serve?

The United States Patent Office (USPTO) has been receiving applications for patents on strains of cannabis. This could be because a few states have legalized recreational use of cannabis or because the majority now supports legalization.  Certainly, the projections of tens of millions of dollars of potential revenue will interest businesses and investors.  But cannabis is federally illegal under the Controlled Substances Act.  Can the USPTO even grant a patent on something illegal?  More importantly, why should the USPTO grant these patents?  There are valid arguments for both sides, but ultimately the USPTO should grant these patents because whether or not those patents can be enforced is a separate question for a separate agency.

In order to patent something the inventor must provide a description of the invention that would give someone familiar with the material the ability to actually make the invention.  This “enabling” for a “person skilled in the art” is part of what the public gets.  When your temporary exclusive rights run out, we can all take advantage of your clever new invention.  Money made during the exclusive period works as a reward for your inventive mind as well as incentive for the rest of us to get out there and innovate.

Among other requirements, an invention must be “useful” to be eligible for a patent.  Just about anything can be “useful” in one application or another, but what about uses that society would not want?  Imagine Ted Kaczynski comes up with a cunning new way to disguise, package, and deliver explosive devices.  It seems patent, so to speak, that there is little “useful” about this invention.  Justice Story, better known for the Amistad case, posited that “a new invention to poison people, or to promote debauchery, or to facilitate private assassination, is not a patentable invention.”  Further, Justice Story indicated that “whether [the invention] be more or less useful is a circumstance very material to the interests of the patentee, but of no importance to the public.”  An invention can be “useful” for patentability purposes but have very little practical use. This doesn’t matter much to the rest of us because, as Justice Story put it, it “will silently sink into contempt and disregard.”

Courts have used Story’s reasoning to deny “useless” patents, usually of gambling devices or inventions to facilitate fraud.  Courts, over time, have shifted away from the sticky issue of morality and generally look toward “usefulness” with a pretty open mind.  In fact, the Federal Circuit explicitly stated that “years ago courts invalidated patents on gambling devices on the ground that they were immoral . . . but that is no longer the law.Juicy Whip, Inc. v. Orange Bang, 185 F.3d 1364 (Fed. Cir. 1999)  (Citations omitted, emphasis added).

In Juicy Whip, the invention was “designed to deceive customers by imitating another product and thereby increasing sales of a particular good.”  That court held that the “utility” requirement in the Patent Act of 1952 “[wa]s not a directive to the Patent and Trademark Office or the courts to serve as arbiters of deceptive trade practices.”  Further, the court pointed to 42 U.S.C. § 2181(a), which revokes all granted patents and denies patentability to anything “useful solely in the utilization of special nuclear material or atomic energy in an atomic weapon.”  Essentially, that court said potentially harmful uses of inventions are not the purview of the patent office and if Congress wants something specific barred from patentability, they will pass a law to that effect.

Now you’re probably thinking “wait a minute, what about our hypothetical patent application by Kazcynski?  Surely we, as a society, still draw the line somewhere?”  Of course we do, it’s just not the Patent Office’s job.  For example, the Federal Circuit in Juicy Whip cited to In re Watson, quoting “it is not the province of the Patent Office to determine, under section 101, whether drugs are safe.”  Other agencies are responsible for safety, the FDA in that case.  Cannabis is federally illegal, but enforcing that aspect of the plant is the purview of the DEA, not the Patent Office.

The Supreme Court has held that “Congress never intended that the patent laws should displace the police powers of the States, meaning by that term those powers by which the health, good order, peace and general welfare of the community are promoted.”  Generally, it seems that a patent on an invention with dubious merits will stand (at least with regard to ‘utility’) even if you might not be allowed to use (‘practice’) it in a given jurisdiction.  Individual states can -and do- determine for themselves how best to enforce cannabis possession, growth, distribution, sales, etc.  The Patent Office was not intended as an enforcer of federal laws.  Still, cannabis is federally illegal.

A plant can be patented.  Plant applications like this application for “Midnight,” a strain of cannabis with 1:1 ratio of Tetrahydrocannabinol (THC) to Cannabidiol (CBD), are curious because possessing one is almost always in violation of the Controlled Substances Act.  While many agree that both the courts and the USPTO have abandoned Justice Story’s observed limitations, the Federal Circuit in Juicy Whip does leave some room for denying a patent application if it could not be put to legal use.  Specifically, the Juicy Whip court cited Fuller v. Berger, 120 F. 274 (7th Cir. 1903) which would deny an invention “incapable of serving any beneficial end.”  Juicy Whip also quoted a much more recent case, clarifying that “the claimed device must be totally incapable of achieving a useful result” and the “test for utility” is “not merely that the device has been used for pernicious purposes, but that it is incapable of serving any beneficial end.”  Fuller referenced the Colt revolver and its inherently dangerous nature, then advocated that an invention is useful if it can be used “to accomplish a good result, though in fact it is oftener used (or is as well or even better adapted to be used) to accomplish a bad one.”  The question, then, is can a cannabis plant accomplish a good result in spite of its federal status?

There may be some plausible legal use for, say, handcuffs that administer electric shocks, even if torture is the first use that comes to mind.  That application has expired, but it’s an example of an invention with questionable “uses.”  Is an invention that has no legal use incapable of serving any beneficial end?  Granting a patent is not a guarantee from the government that you can use, or ‘practice,’ it.  A drug might be patented but be declared unsafe by the FDA, or the FTC might protect consumers from a deceptive invention.  Our laws are malleable, subject to review and change.  Cannabis being legal or not is also changeable.  In fact, legislators are currently working on changing cannabis’ legal status.

What if an inventor during alcohol prohibition created an efficient and safer process to isolate ethanol but was denied a patent?  One amendment to the Constitution later, that invention has legal applications.  Surely this is some injustice to the original inventor, society not upholding our end of the contract.  Also, if we legalize liquor, don’t we want more efficient and safer methods of production?  On the other hand, patent applications are public domain, so an application for an illegal invention by definition enables others to make it. (Though I think it is an unlikely criminal who peruses patent office materials in hopes of some improvement to their criminal empire).

If the USPTO does grant cannabis-related patents it will likely encourage more applications of this kind.  One of the effects of decriminalization is increased awareness and understanding of cannabis and cannabis products.  Cannabis consumers trying to create “butane hash oil” (BHO) have been increasingly blowing themselves up.  Presumably this is because more people are aware of BHO in the first place.  However, the public will subsequently become more aware of the dangers and perhaps less likely to engage in those methods.  Also, people may invent and patent safer and more reliable methods or machines to produce BHO.

An “illegal” invention could be safer than previous technologies, and could further public health concerns while ostensibly subverting federal law.  Consider a particular strain of cannabis with high CBD and low THC that, due to the differences in those active substances, may have medical uses without the psychoactive effects of cannabis.  We should encourage such limited uses and developments of a drug in the same way that we encourage it for other scheduled but better known drugs.  

Certain inventions, such as the physically impossible, provably lack use, but patents should not be denied for current illegality.  Certainly some patents have been granted for substances derived from cannabis plants, which means the inventor was working with those plants – a fact that was probably not overlooked by the Patent Office. Extending that to a patent on the plant itself is a small step. Also, cannabis has some utility, either in the present sense in states where cannabis has been decriminalized, or in the possible future of federal decriminalization.  If that isn’t enough, society can still benefit from increasing knowledge in the public domain while relying on other agencies, such as the DEA or, if legalized, the FDA, to enforce any application of a patented cannabis strain.

Cannabis and Intellectual Property: To © or not to ©, and Other Pressing Questions

My contributions will primarily be analysis of different aspects of intellectual property in a market that has decriminalized cannabis while it remains federally illegal.  Can, and more importantly, should a state furnish intellectual property protections when they are unavailable from the federal government?  California’s possible shift from medical cannabis to recreational cannabis raises many questions about commercial and social costs and benefits to affording these protections.  While attorneys and businesses are largely approaching this topic from the perspective of private players,  my goal is to outline not just the various legal challenges and possible solutions to the concerns of cannabis-oriented businesses but, instead, to point out how a state can balance those private interests with public policy, safety, and health concerns.

I am a law student who studied science for my undergraduate degree. I am focusing on intellectual property law with an emphasis on patent prosecution. I am an associate on the Santa Clara High Tech Law Journal, and I have developed a strong interest in the intellectual property challenges presented to emerging markets and businesses.  Because of the politicized nature of these topics I am writing under a pseudonym, Lucilius, who was a friend and correspondent of one of my favorite writers.