IP Insurance: Trademark vs. Patent vs. Trade Secret

Despite federal prohibition, the U.S. Patent and Trademark Office (USPTO) has already begun issuing patents for cannabis varieties, including some controversial broad utility patents. Now that the cannabis marketplace is becoming legal, at least in 30 states, businesses that rely on intellectual property need to plan for the future by protecting the value of what they do. Understanding and insuring trademarks, patents and trade secrets is now a must for any cannabis business.

There are two different types of intellectual property (IP), hard and soft. Soft IP refers to trademarks and copyrights, while Hard IP refers specifically to patents. In the cannabis space, both can be appropriate, depending on how the business derives its value.

Patents

Variety patents are most appropriate for breeders who derive their value from creating new, rare and unique varieties. Plant patents are relatively cheap and easy to obtain and protect cloned varieties that are a result of the breeder’s work, meaning they are not found in nature as such.

The Plant Variety Protection Act of 1970 (PVPA) was passed to protect breeders and inventors. Under the PVPA, breeders have 25-year exclusivity over their work, meaning they can exclusively sell or enter into licensing deals with other nurseries or farmers who wish to produce it.

But there is another kind of patent that has recently emerged in the cannabis space; the utility patents. Utility patents are more difficult and expensive to obtain, but are also more broad in scope.

Controversially, a little-known company, Biotech Institute LLC, was approved for one of the broadest utility patents in the cannabis space to date. Biotech now has a family of broad utility patents known as “Breeding, production, processing and use of specialty cannabis.” The patent includes any variety that makes both THC and CBD and does not have myrcene as the dominant terpene, which could include a lot of the plants already in use by growers, breeders and consumers all over the world.

The problem is in proving “prior art”, or providing published evidence of use before the patent application. When a patent examiner receives the application, they work to verify or invalidate the claims made by seeking out previously published materials that would pre-date the ‘invention”. Of course, because cannabis has been a crime in the United States for over 80 years, there is very little published prior art to prove the claims wrong.

“Basically, the intent is to protect one’s IP because at the end of the day, particularly if you are a manufacturer or a genetics organization, you want to protect your product or brand or derivative from someone else co-opting it and taking it as their own. There is a lot of concern out there that once prohibition ends on a national basis that large well-financed conglomerates are going to come in and essentially steal ideas and concepts that perhaps a smaller organization had developed,” says Al Fine, director of risk management at Emergent Risk.

Trademarks

While patents are used to protect inventions, trademarks are used to protect other IP that isn’t necessarily a new and novel invention but is still essential to the core value of the business. Unlike patents, however, the USPTO is not issuing trademarks since they are specifically related to commercial activity that is still illegal under federal law.

Trademarks are essential for a business that derives its value from branding and reputation. A company slogan, logo or other identifying marks can be trademarked and protected– and should be in order to prevent competitors from stealing or copying branding of successful products the market is familiar with and demands.

“Let’s say you have something from a particular region in Sonoma and you want to call it Sonoma Kush and that brand has a local following, you want to make sure someone can’t come steal that name without your permission,” Fine says.

Even if there is nothing to patent, the reputation a business builds and the branding assets it uses to associate that reputation to its market is valuable intellectual property that should be trademarked for protection. Although the federal government is not yet issuing cannabis trademarks, they can often be obtained through the individual states, which will provide footing for a federal trademark when prohibition ends.

And, unlike a patent, a trademark will never expire as long as it is in use.

Trade Secrets

The third type of intangible intellectual property asset cannabis businesses would be wise to protect are “trade secrets” or confidential information that isn’t necessarily an invention or a brand, but is essential to the core business value.

According to LegalMatch, a  trade secret is “any information, process, formula, technique, or method that is not readily known by the public and provides an economic benefit to its holder. In order for information to keep its status as a trade secret, the holder must make reasonable efforts to preserve its confidentiality”

In the cannabis space, this could be anything from a secret edible recipe or method for producing the edibles, or a unique extraction process that doesn’t use a unique invention.

“Sometimes the value is in having a secret, something no one else knows. Then the kind of IP you need to protect is called ‘trade secrets’, and you have to be careful about how you hire people and how you protect the company secrets, the obligations you hold people to when you hire them or when they leave your employment. Even trade secrets can be considered intellectual property in that they can be very valuable,” says Dale Hunt, PhD, plant biologist and cannabis IP attorney with Hahn Loeser & Parks LLP.

“Anytime you have a scientific development where you have a unique product or process, one should go out and protect that IP. What we are finding is that, just like in other businesses, the manufacturing or development of things may take place in other countries or by other organizations but it is the idea, the concept, the unique product that is the asset that needs to be protected,” Fine says.

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Kirk is a proven compliance, risk analysis and business strategy leader with more than 20 years of cannabis consulting and insurance industry experience.