Archive for the ‘Intellectual Property’ Category

  • Cannabis Trade Secrets in California: Protecting Your Intellectual Property

    Trade secrets are valuable business assets that many cannabis companies have, perhaps without knowing that they are trade secrets.  For example, a cultivator may have developed proprietary cloning and tissue culture techniques, or proprietary growing methods, or proprietary drying and curing processes, blissfully unaware that California law may provide meaningful protection to valuable intellectual property so long as it is not generally known to the public and reasonable efforts are made to maintain its secrecy.

    Critically, the confidentiality of a trade secret must be protected in order to maintain its value. The State of California actually defines a trade secret as information that: (1) has economic value; (2) is not generally known to the public; and (3) subject to reasonable efforts to maintain its secrecy.

    Trade secrets are granted legal protection because they are valuable assets; indeed, the technological innovations of the modern era would not exist if the law did not recognize trade secrets, as there would be no incentive for organizations to pour tremendous resources into research and development if the law failed to provide sufficient protection.

    That is not to say that trade secrets cannot be shared with anyone—part of the value inherent in a trade secret is the ability to license its use to others for a fee or royalty. That said, care must be taken in all situations where a trade secret is made available to individuals or entities other than the secret’s owner if trade secret status is to be preserved.  Even accidental disclosures of trade secret information can destroy the “trade secret status” of that information.

    Trade secret status is important because it allows a company to take legal action in the event someone wrongfully gains access to its trade secrets. Moreover, some information does not qualify for any other form of intellectual property protection and is thus only protectable as a trade secret – for example, recipes (including “recipes” for soils, compost teas, fertilizers, etc.). Under the California Uniform Trade Secrets Act (“UTSA”), the owner of a trade secret that has been misappropriated can obtain an injunction (the right to stop the opposing party from taking certain actions, such as using a particular trade secret or from sharing such secret further) as well as monetary damages. While monetary damages are generally limited to the amount a party has actually suffered, in trade secret cases the court has discretion to award treble damages (i.e. an amount up to three times higher than the actual damages incurred). Attorneys’ fees and costs are also generally available to the prevailing party, including reasonable fees for independent experts. In certain cases, imprisonment or fines may also be imposed on the trade secret misappropriator. While cannabis companies tend to prefer state court, for obvious reasons, trade secrets are also actionable under federal law. For cases that arise after May 11, 2016, the Defend Trade Secrets Act (“DTSA”) is a federal statute that provides damages and injunctive relief comparable to California’s UTSA.

    While trade secrets are protectable, many businesses struggle with the requirement of treating the information as secret. A certain amount of disclosure is inevitable when using information as part of a business – especially to employees, but also when attracting potential investors – yet if a business fails to take reasonable steps to protect the information, the remedies outlined above will not be available. Thus, companies that have developed valuable information should also develop a trade secret plan for protecting that information. Having a written trade secret plan not only enables the company to better protect its secrets, but also acts as evidence in and of itself that reasonable efforts to protect the information have been implemented. (Merely having a trade secret plan will not be dispositive; the plan should, of course, be implemented and adhered to).

    Noted attorney James Pooley, author of the legal treatise “Trade Secrets”, has written that a trade secret protection plan should be based on four principles: inventory, simplicity, responsibility, and review.
    • Inventory – a company must, at the onset, know what it is the company wants to protect in sufficient detail to identify threats to its secrecy as well as establish its value.
    • Simplicity – an effective trade secret plan must not be complicated or overly burdensome, otherwise the plan is likely to be ignored by ownership and employees alike.
    • Responsibility – Pooley recommends that a specified individual or individuals be responsible for implementing every aspect of the trade secret protection program, including audits for effectiveness.
    • Review – as noted above, trade secret plans should be audited and reviewed to ensure that the plan is being consistently implemented and the trade secrets actually protected.

    An effective trade secret plan identifies the manner in which trade secrets are most likely to be compromised and creates protection policies accordingly. Consider the following situations and whether the proprietary information is adequately protected:

    • Employee Mobility – Non-competition clauses are not enforceable in the State of California; thus, one’s employees are generally free to leave one’s employment and work for a direct competitor at any time. Do employees know what information in their possession is considered confidential, proprietary, and/or a trade secret? Do they know what they are and are not allowed to do with that information when they leave your employment? If you have established a duty of confidentiality, both during and after employment, was it in writing?
    • Site Visitors (especially investors) – Potential investors, as well as other visitors, are also threats to a trade secret. When giving tours and explaining how your facility maintains a competitive edge, do you unwittingly reveal your processes? Are novel inventions capable of being observed during site visits by outsiders? Giving a facility tour without requiring Non Disclosure Agreements (NDA’s) presents a grave risk to successfully asserting the confidentiality of a trade secret in the future.
    • Lack of Document Security – Many businesses write out trade secrets during development and following so that they can be accessed, reviewed, and perfected; such may even be a necessity. Think of supplier lists, fertilizer recipes, customer lists, and so forth. Where do you store these documents containing trade secrets? Are they accessible by site visitors? Are they lying out in the open? Can all employees access them or only those employees who have a need to know the information? Are they stored in a locked area when not in use?
    • Lack of Electronic Security – In the same manner that many individuals write out trade secret information on physical paper, many individuals prefer electronic documentation. If there is a computer at your business location containing such documents, is it password protected? If so, do all employees know that password and have access to that computer, or only those that need to know the information to perform their job duties?
    • Government Submissions – Cannabis companies are required to submit a wealth of information about their business operations to both local and state governments in order to obtain a license for cannabis-related activities and portions of information requested by the government agency during an application process may well constitute a trade secret. Have you taken any steps during the application process to communicate to the government agency that you consider portions of the application to be a trade secret that needs to be protected from disclosure to non-regulators?

    In sum, by taking reasonably appropriate steps to protect its valuable trade secrets, a California cannabis company can protect critical segments of its intellectual property portfolio.

    The above information is provided as a public service. It is not intended as legal advice.

    For answers to your legal questions or legal assistance, including with establishing and implementing a trade secrets protection plan, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • Federal Registration of Cannabis Trademarks™ and the Natural Zone of Expansion

    Federal trademarks registered with the United States Patent and Trademark Office (“USPTO”) are valuable business assets that, if possible, should be cultivated and protected.  The ® registration symbol can be used in conjunction with a trade or service mark if, and only if, the mark has been granted federal registration.

    If a mark has not been granted federal registration, it is unlawful to use the ® registration symbol, so the less prestigious ™ symbol is generally used instead. The ™ symbol can indicate various possibilities: 1) the mark is being used to distinguish goods, and the owner of the mark has common law rights, but no registration application has been filed at either the state or federal level, or; 2) a state registration has been filed (and has been granted or is pending), or; 3) a federal trademark application has been filed and is pending but not yet granted.

    Trademark law, at its heart, is built upon the principle of first use – generally, the strongest rights to use a given mark will be granted to the first entity to have actually used it. However, “use” must meet a variety of requirements in order to be considered valid for trademarking purposes. To begin, the use must be within the “ordinary course of trade” for the given industry.[1] Moreover, the use must be “bona fide,” or to put it another way, done in good faith – the applicant must be using the trademark because it has a good faith intention of being recognized by the public as the source of particular goods or services. Token use of a trademark done solely to gain rights in a trademark that the applicant has no or only illusory intentions of using are not sufficient (i.e., think of it as trademark “squatting”). In addition, in order for the USPTO to have authority to issue a federal registration, the use must be “in interstate commerce.” Interstate commerce generally means that the goods or services physically cross state lines; however, there are certain uses that are deemed inherently affecting interstate commerce and therefore eligible for trademark registration.

    Cannabis companies face an added difficulty because the USPTO also requires that use of a trademark be “lawful.”[2] To that end, the USPTO will currently not issue trademark registrations for cannabis and related products or paraphernalia under the rationale that, as a matter of law, the necessary use of such goods in interstate commerce violates the federal Controlled Substances Act (“CSA”) and is thereby inherently unlawful. The legality of the use under state law is considered inapposite for purposes of gaining a federal trademark.

    Given the USPTO’s refusal to issue trademark registrations for cannabis goods, many applicants have endeavored to gain the value of a trademark by simply applying for a trademark on a broad category of goods, generically described, with the hopes that cannabis will be able to implicitly hide inside that category. This tactic has not met with much success, however – namely, the USPTO inevitably discovers that the goods were described in an overbroad manner (which warrants rejection of the application in its own right) and the only goods on which it is used are deemed “unlawful” (and thus again not entitled to registration). A trademark application is required to identify the goods and services on which the mark is used with a reasonable amount of specificity. Applicants frequently use very broad terms to identify their goods and services in an application, but if an applicant’s actual use is in fact limited only to a much smaller subclass of goods or services, and one which is capable of being easily described for application purposes, the application will be denied unless the goods and services listed are narrowed accordingly – and that is a rule that applies no matter the type of goods being applied for.

    That said, many companies do in fact use a mark on a variety of goods within a broad category. An application using the broader category will be accepted in such instances.[3] If the USPTO deems a description of goods to be overbroad, however, the application will be rejected unless amended to narrow the scope of goods claimed.

    This is important because the USPTO has discretion to investigate the actual use of a trademark to ensure that it is used in the manner described by the application (as well as in compliance with trademark law, meaning the claimed goods are described with sufficient specificity and that the use is “lawful”). To this end, many examiners at the USPTO look at an applicant’s website and social media pages to see how the applied-for mark is being used. For cannabis companies, such research generally indicates that the trademark is used solely or primarily with regards to cannabis products and thus, the application is rejected on two counts: first, that the goods were described in an overbroad manner and, second, that the use is unlawful. Ordinarily, an application can be amended to narrow the goods being claimed and thus still gain approval, but for cannabis companies, narrowing the scope to identify cannabis products specifically still fails the lawful use requirement.

    Yet, there is another approach to consider that has met with success on at least a few occasions. Rather than attempting to protect cannabis products directly by filing for a broad category of goods with the hope that cannabis hides implicitly within the scope of that broad category, protection can be gained by filing for related goods. If cannabis is explicitly disclaimed from the goods being registered, the application on its face does not violate the CSA and should be entitled to registration. While disclaiming desired goods may seem counterintuitive, holding a mark for a specified class of goods or services can still sometimes be used to prevent (and therefore protect against) confusingly similar trademarks on other goods and services, including the desired goods, despite their not having been listed in the original application.

    Trademarks are filed, as noted above, for specific goods and services. But the law recognizes that companies frequently start with a limited number of goods and then expand their offerings to include other goods within the same general category – these new goods are considered part of the company’s “natural zone of expansion.” Thus, a registration for “clothing” (Class 25) will act as a block for “leather goods” (Class 18) because the USPTO has recognized that clothing companies often expand their line of goods such that they act as a source for items from both categories. Thus, the goods are deemed within each other’s natural zone of expansion – in other words, since clothing manufacturers (shirts, pants, etc.) frequently branch out to also manufacture leather goods (belts, etc.), both categories will be examined when competing trademarks are to be filed in either category.

    Similarly, the law accounts for the fact that some goods are so “related” (even if they happen to be filed in different classes) that confusion may be likely among consumers if the same or similar marks were used on both, despite the fact that manufacturers of one do not ordinarily evolve to manufacture both. For example, beer exists within Class 32 while wine and spirits exist in Class 33. Despite being different goods in different classes, a mark that has been registered for beer in Class 32 will generally act as a block to any mark that is confusingly similar being registered on wine, vodka, whiskey, etc., even though such goods exist in an entirely separate class. This is true irrespective of the fact that breweries rarely evolve to manufacture wine or vice versa.[4]

    With regards to cannabis, both principles can be leveraged to gain a zone of protection that will surround a cannabis mark and protect the mark from being filed by a competing user now or in the future. By identifying classes of goods and services that fall within the natural zone of expansion or “related goods,” cannabis products can be afforded protection, despite not being listed in the application. Essentially, one wants to imagine which class their goods would be filed in once cannabis becomes eligible for trademark protection in its own right, and file in that class (or an adjacent class) to create a reserved space ahead of time.

    Depending on the goods and services that a given cannabis company will offer, there are obviously a number of classes in which that company may wish to file. There is no limit to the number of categories a company is allowed to apply for so long as the mark will be used on those goods and services. However, as indicated above, the mark must be actually used on such goods and services and the use must be within the ordinary course of trade, thus a single sale of such goods or services will not be sufficient – an ongoing business effort must be implemented.

    Above, it was noted that an applicant must show use of the mark on the applied-for goods in order to apply for a trademark. This can be problematic given that, as also noted above, priority is given to the first user of a given mark. The former rule means that, ideally speaking, a company will use and apply for a mark as soon as possible. Luckily, there is a limited exception to the use necessity in the form of an Intent-to-Use application. Intent-to-Use applications allow a company or individual to file for a trademark before they have used the mark on the applied-for goods, so as to save their “space in line” chronologically speaking. As such, it allows an applicant to reserve rights in a mark while, for example, they are still in the formative stages of their business or waiting on a crop to be harvested. When filing an Intent-to-Use application, the applicant has six months from the date the application is approved in order to actually use the mark. If that six-month period is not enough time, up to five extensions may be filed; in other words, an applicant will have up to three years to actually use the mark. The Intent-to-Use application does involve additional paperwork, and thus additional expense, but it allows companies to reserve a mark without fear that a competitor will beat them to market in a given industry.

    If you have further questions about trademarks or would like to move forward with trademark clearance and registration, please contact the Law Offices of Omar Figueroa at 707-829-0215.

     

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    ENDNOTES

    [1] Trademark Manual of Examining Procedure (TMEP) 901.02

    [2] See In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016); John W. Carson Found. v. Toilets.com, Inc., 94 USPQ2d 1942, 1948 (TTAB 2010); In re Midwest Tennis & Track Co., 29 USPQ2d at 1386 n.2 (TTAB 1993); Clorox Co. v. Armour-Dial, Inc., 214 USPQ 850, 851 (TTAB 1982); In re Stellar Int’l, Inc., 159 USPQ 48, 50-51 (TTAB 1968).

    [3] By way of an example, an application claiming a mark for “baked goods” will be deemed overbroad if the applicant only actually makes one or two specific baked goods, say cookies. If, however, the applicant makes cookies, brownies, cupcakes, pies, croissants, and bread, the application may be accepted as described.

    [4] These rules are not absolute of course, and every application is examined on a case-by-case basis. Many factors go into whether two marks are similar enough to be confusing and thus whether the prior user can reserve the secondary space (i.e., block a newer user from using the similar mark).