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California’s Bill to Add Marijuana Trademark and Service Mark Classifications

February 28, 2017

Author: James F. Monagle

On December 12, 2016, Assembly Bill No. 64 (AB 64) was introduced to California’s legislature, with the stated purpose of (1) furthering the intent of the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), a voter-enacted initiative legalizing recreational use and commercial sale of marijuana, and (2) reconciling that law with earlier laws addressing medical marijuana, dating back to the passage of the California Compassionate Use Act in 1996, when California became the first state in the nation to allow the use of medical cannabis.

Since then, 29 states have legalized medical marijuana, and 8 states and the District of Columbia have legalized marijuana for recreational use. Although AB 64 contains several other noteworthy (and politically palatable) provisions, the most talked-about feature of the new bill is the proposed creation of two new classifications for the registration of trademarks and service marks after January 1, 2018: Class 500 for medical and nonmedical cannabis or related products and Class 501 for medical and nonmedical cannabis-related services. Although conventional wisdom dictates these proposed classifications will enable marijuana businesses to better protect their intellectual property, the legal necessity and potential effect of such classifications, including on currently existing alternatives, deserves a deeper exploration.

California/USPTO Aligned Against Legality of Marijuana Goods and Services
Because federal trademark law does not necessarily preempt state trademark law, all 50 states have enacted some form of state-based trademark registration and enforcement system. In line with all other states, California’s Model State Trademark Law provides for the registration of trademarks and service marks with the Secretary of State. However, unlike other states, California’s trademark law has a stated intent “to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946 (15 U.S.C. Sec. 1051, et seq.), as amended.” California Business and Professions Code (BPC) §14272. In addition (like most other states), California’s state trademark law also provides that: “The classification of goods and services shall conform to the classifications adopted by the United States Patent and Trademark Office.” California BPC §14235. Read together, these two provisions dictate that trademarks that could not be registered with the USPTO cannot be registered in California either.

For a three-month period beginning in April 2010,the USPTO had given medical marijuana−related trademark holders hope of securing federal registration of their marks by temporarily including new descriptions in the USPTO’s Acceptable Identification of Goods and Services Manual, including “processed plant matter for medicinal purposes, namely medical marijuana,” and “consumable products infused with medical marijuana, namely [insert type of substance/product description].” See Justin Scheck, “Patent Office Raises High Hopes, Then Snuffs Them Out,”  Wall Street Journal, July 19, 2010; SN 85079814, Correspondence dated September 27, 2010 (explaining retraction and offering a refund for application made under retracted identifications).

Aside from this hiccup, the USPTO’s stated policy has always been and continues to be to refuse all trademark applications for marijuana-based goods and services as illegal under the Controlled Substances Act (CSA), which prohibits, among other things, manufacturing, distributing, dispensing or possessing certain controlled substances, including marijuana and marijuana-based preparations, and makes it unlawful to sell drug paraphernalia. 21 U.S.C. §§812, 841(a)(1), 844(a), 863. The USPTO’s rationale is that valid trademark use, which requires a lawful use in commerce, cannot subsist in illegal activity.

For example, in a federal trademark application for the mark “Z WEED” (SN 86893120), the applicant described its goods strictly in terminology accepted by the USPTO: “Herbs for medicinal purposes; Medicinal herbal extracts for medical purposes; Medicinal herbal preparations; Medicinal herbs; Medicinal herbs in dried or preserved form; Plant extracts for medical, veterinary and pharmaceutical purposes; Plant extracts for pharmaceutical purposes; Psychotropics.” Nevertheless, in an ensuing office action, the examining attorney rejected registration of the mark, finding “the applied-for mark is not in lawful use in commerce” because the specimen included a depiction of a marijuana leaf, and because “the wording contained in the applied-for mark, namely, ‘WEED,’ plainly indicates that applicant’s identified goods include items that are prohibited by the CSA …”

Even without a damning specimen of use, intent-to-use applications have fared no better before the USPTO. For example, in rejecting the mark “GOOD WEED” (SN 86698504) for “herbs for medicinal purposes,” the examining attorney found (in addition to a descriptiveness refusal) that “the wording contained in the applied-for mark plainly indicates that applicant's identified goods … are prohibited by the CSA,” and concluded, therefore, that “applicant does not have a bona fide intention to lawfully use the applied-for mark in commerce.” See Trademark Manual of Examining Procedure (TMEP) §907 (“For applications based on Trademark Act Section 1(b), 44, or 66(a), if the record indicates that the mark or the identified goods or services are unlawful, actual lawful use in commerce is not possible.”). Notably, this particular office action also contained language commonly used by the USPTO, stating “anygoods or services to which the mark is applied must comply with all applicable federal laws,” and adding “if the items or activities that the mark is intended to be used in connection with are unlawful, actual lawful use in commerce is not possible,” suggesting the USPTO believes that if the mark is used in association with any illegal goods or services, the mark may not be register-able for other goods and services either, even legal ones. See also Office Action refusing intent-to-use application for “BODYBUD BOTANICALS” (SN 86427110) as applied to goods “of the type commonly known in the trade as ‘marijuana edibles,’” despite the examining attorney’s admission that it was “unclear whether these goods do or will have marijuana infusions in them.”

TTAB’s Morgan Brown Decision Threatens Alternative Registration Strategy for Marijuana-Mark Holders
Leading up to the USPTO Trademark Trial and Appeal Board’s (TTAB’s) landmark decision in In Re Morgan Brown, 119 U.S.P.Q.2d 1350, 1351 (T.T.A.B. 2016), it remained unclear whether a mark also used in association with cannabis products had any protection from refusal of applications pertaining to non-cannabis products. Indeed, the applicant in that case argued that the USPTO’s position seemed to be that “those who may also sell substances illegal under the CSA … may never be the holders of a federal trademark even if the trademark applied for is for use in connection with legal goods” Id. (citing Applicant's Brief). In its decision, the TTAB (unsuccessfully) attempted to clarify that “registration generally will not be refused based on unlawful use in commerce unless either (1) a violation of federal law is indicated by the application record or other evidence, or (2) when the applicant's application-relevant activities involve a per se violation of a federal law.” Id.

Additional insight regarding the USPTO’s position was provided, however, in the conclusion of the opinion, which found that:

Because the evidence that Applicant's mark is being used in connection with sales of a specific substance (marijuana) that falls within both the services identification and the prohibitions of the CSA is unrebutted, we find that Applicant's retail store services include sales of a good that is illegal under federal law, and therefore encompasses a use that is unlawful. Id.

Thus, it now appears clear that with respect to identifications that could apply to marijuana-based or non-marijuana-based goods or services, an applicant’s registration is vulnerable to invalidity if a registration is obtained through a specimen showing the mark in association with legal goods or services fitting the description, if the applicant was also using (or subsequently used) the mark illegally under that description.

In addition, the Morgan Brown decision authoritatively rejected related arguments based on the legality of marijuana under state law by stating, “the fact that the provision of a product or service may be lawful within a state is irrelevant to the question of federal registration when it is unlawful under federal law,” and adding “regardless of individual state laws that may provide for legal activities involving marijuana, marijuana and its psychoactive component, THC, remain Schedule I controlled substances under federal law and are subject to the CSA's prohibitions.” Id., at 1351.

Adding to this minefield that federal applicants with marijuana-related marks face, applicable law summarized in the TMEP allows examining attorneys to require additional information from the applicant about the goods or services and to inquire about compliance with federal law. TMEP §§814, 907; see also, e.g., Office Actions regarding “GANJYARD” (SN 86835910) (requiring a “written statement indicating whether all the services identified in the application will comply with relevant federal law, including the Controlled Substances Act”) and “GET LIFTED” (SN 86536529) (requiring the applicant to respond to questions including whether the identified goods include marijuana, or “paraphernalia or equipment designed for use in smoking, ‘vaping,’ inhaling, ingesting or consuming marijuana [including synthetic marijuana].”). TMEP 907 further requires that “if, in response to a requirement for information or a refusal, the applicant indicates that the relevant goods or services comply with federal law, but there is extrinsic evidence indicating that the goods or services do not, in fact, comply with federal law, the examining attorney must refuse registration (or maintain the prior refusal), citing the relevant extrinsic evidence.”

Analysis of the separate federal applications of a company affiliated with Tommy Chong (of the stoner comedy duo Cheech & Chong) for the mark “CHONG’S CHOICE” (SN 87082424) and another seeking to register “CHEECH & CHONG” (SN 86573354) in identical classes 05 (medicinal herbs), 25 (clothing) and 34 (smoking utensils) may help illustrate the USPTO’s policies in practice. The “CHONG’S CHOICE” mark was refused registration in classes 5 and 34 based on unlawful use in violation of the CSA, because (1) the specimens submitted displayed pot leaves on the products and on the mark and (2) the applicant’s website (which the examining attorney independently examined) revealed that the products were marijuana-related. By contrast, the intent-to-use applicant for “CHEECH & CHONG” was required to respond to the following questions:

  • Do applicant’s identified goods include or contain marijuana, marijuana-based preparations, marijuana extracts or derivatives, or any other illegal controlled substance?
  • Do applicant’s identified goods include or consist of any equipment, product or material of any kind that is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance?

In response to the first question, the applicant replied that the mark was not yet in use on the specified goods, but added “it is not intended that [the goods will] be an illegal controlled substance.” Similarly, in response to the second question, the applicant responded “the goods are still in development. Applicant does not intend for the goods to be primarily intended or designed for [prohibited purposes].”

Subsequently, the applicant submitted specimens in showing use in Class 05 with no discernible reference to marijuana, and on clothing and various pieces of paraphernalia (including a vaporizer called “the doobie”), and the mark proceeded to register. What remains to be seen is if the registrant ever brought a claim for infringement, whether the registrations in classes 05 and 34 could be invalidated by a defendant based on unlawful uses in those classes, despite the innocuous specimens and actual simultaneous use on lawful goods.

The uncertainty solidified by the Morgan Brown decision calls into question a common strategy for obtaining federal registrations, i.e., using non-marijuana-based products and services as specimens of use to obtain registration despite simultaneous use illegal under the CSA in association with such goods and services. Defendants in federal trademark litigation have invoked a defense of invalidity under such circumstances, and can be expected to continue to do so. Moreover, an applicant’s responses to UPSTO inquiries during the registration process could provide a separate basis for invalidation of the registration (including valid uses) based on a theory of fraud upon the trademark office. For these reasons, seeking federal registration for goods and services under which a mark is being used in potential violation of the CSA may not be worthwhile. Similarly, the related strategy of seeking federal registration for ancillary but legal-across-the-board services is unattractive, as protection is afforded only to those ancillary goods and services, and the strategy risks facing invalidity arguments the closer these ancillary goods and services get to marijuana-based ones illegal under the CSA.

Are New Trademark Classifications in California Necessary?
Rather than amending the statute that requires California’s trademark law to be “substantially consistent with the federal system,” California BPC §14272, AB 64 instead only addresses the statute that requires conformity of classifications to those of the USPTO. California BPC §14235. Accordingly, AB 64 proposes new §14235.5, which adds the two new cannabis classifications “notwithstanding Section 14235.” This departs from the trademark registration systems of other states that legalized recreational marijuana before California, and from the UPSTO’s short-lived system for registration of medical-marijuana-related marks, all of which allowed marijuana descriptions in existing classes rather than creating new classifications altogether.

Notably, those prior recreational use states also have provisions comparable to California’s §14235, requiring conformity with USPTO classifications. See 2015 Colo. Rev. Stat. Ann. §7-70-101; ORS 647.024; RCW 19.77.115. Marijuana-based trademark registrations are currently available in all of these states under existing classifications. See, e.g., Colo. ID # 20161093519 (Gorilla Glue logo for a medical cannabis strain in Class 31); Oregon Reg. No. 43635 (juju joints for “smokeless marijuana or cannabis vaporizer apparatus” in Class 34); WA file # 56638 (“The Joint” for marijuana / cannabis in Class 31). In fact, because obtaining state trademark registrations is often so rote, requiring little to no examination in most states, registrations that could not be obtained federally due to the CSA are routinely registered even in states where recreational marijuana is not yet legal. See Dropleaf LLC v. JJ 206, LLC et al., 2016 WL 2620202 (W.D.Wash. 2016) (referencing Nevada state trademark registrations for a “vaporizing marijuana or cannabis delivery device”).

However, concerns such as the inability to police incoming trademark applications, or the potential problem of marijuana-based products competing with their non-marijuana-based counterparts tend to counsel in favor of California’s separate classification for marijuana-related marks to keep them more organized. See, e.g., The Hershey Company v. Tincturebelle, LLC, case No. 1:14-cv-01564 (D. Colo 2014) (involving claims against a marijuana edibles producer for products mimicking Reese’s, Heath, Almond Joy and York candies).

Marijuana Trademark Registrations in California versus Current Alternatives
Many of the benefits of the federal registration system are unavailable at the state level, such as the ability to file intent-to-use applications, which reserves marks despite a lack of use and treats such unused marks as being first used nationwide as of the application date. The framers of the Model State Trademark Act, adopted almost uniformly by all states, decided that allowing intent-to-use-marks at the state level could create chaos, and they declined to include intent-to-use provisions in the Act. Other important provisions of the federal system that have no parallel whatsoever at the state level include:

  • Incontestability after five years of continuous use
  • Ability to use the registered trademark symbol (®) when the mark is used for the goods and services listed in the registration (although the trademark superscript (™) remains available for all uses)
  • A basis for foreign registrations
  • Use of U.S. Customs and Border Protection to block imports that infringe the mark or are counterfeit.

Nevertheless, state-based registrations offer at least some of the protections of federal registration. For example, state registrations will show up in most professional nationwide clearance searches, providing notice of the mark holder’s rights and potentially discouraging others from using confusingly similar marks (because such use would be barred at least in the states where the mark is registered). In the marijuana-legal state of Washington and other states, registration is deemed to provide “constructive notice of the registrant's claim of ownership of the trademark throughout this state,” thereby preventing others from claiming their subsequent adoption of a similar mark was in “good faith.” Wash. Rev. Code Ann. §19.77.040. Similarly, some state registration systems protect against registration of confusingly similar marks as the USPTO does, which can help to prevent infringement at no additional cost to (and usually without the knowledge of) the mark holder. In addition, state registrations with attendant registration numbers, certificates, and so on have intrinsic value for valuing, marketing and contracting for the sale of a business or its assets, including intellectual property and related goodwill.

Unfortunately, nearly all state registration systems are inferior to the federal counterpart on the issue of evidentiary presumptions created through registration, such as prima facie evidence of the validity of the mark and the exclusive right to use beyond the geographic scope of actual use. Compared with the federal system, which affords the owner exclusive rights to use the mark nationwide (subject only to prior users’ scope of actual use), only Florida, Massachusetts, Texas and Virginia explicitly afford registrants exclusive statewide use of registered marks. See Mass. Gen. Laws Ann. ch. 110H, §5 (registration provides “prima facie evidence of the registrant's exclusive right to use the registered mark in this commonwealth on goods or services specified in the registration”).

Because Massachusetts recently legalized marijuana for recreational use, once commercial use becomes implemented, immediate registration of marijuana-based marks there is advisable. A few other states, such as Michigan, Minnesota and Connecticut, have ambiguous provisions in their statutes that support an entitlement to statewide exclusive use with registration. However, even in states granting statewide exclusive use with registration, case law has upheld a prior user’s common law trademark rights.

In the reminder of states, California for example, state-based registration arguably adds nothing to the registrant’s common law rights. See Minuteman Press Int'l, Inc. v. Minute-Men Press, Inc., 1983 WL 51917, at 1 (ND CA 1983) (limiting zone of state-based registrant’s rights to be the San Francisco Bay Area, at least in cases against federal registrants). However, because courts have noted that “the right of a state registrant to bar intrastate use of a mark that is not federally registered may be broader …,” and federal registration is unavailable for marijuana goods and services, seeking state registrations for such goods and services is advisable where available, i.e., at least in Colorado, Oregon and Washington, and possibly soon California. Spartan Food Sys., Inc. v. HFS Corp., 813 F.2d 1279, 1285 (4th Cir. 1987); see also Minuteman, 1983 WL 51917 at 9 (noting that “a “finding of invalidity [of plaintiff’s federally registered mark] might result in a redefinition of defendant's statewide rights based on the state's trademark and name statutory scheme.”).

Despite the relatively limited legal effect of a California state registration versus a federal one, in light of the difficulties federal registration poses for cannabis businesses, the option of legal state registration is unquestionably attractive. AB 64’s author and proponent, Assemblyman Rob Bonta (D-Alameda), has stated he believes owning legal trademarks will help bring these businesses “out of the shadows.” Likewise, as the leading trademark treatise author J. Thomas McCarthy concedes, a state registration could create “a psychologically soothing effect on the owner” by having something tangible to reference, rather than simply arguing priority of use. See McCarthy on Trademarks and Unfair Competition 4th, §22:1. Alternatively, a state reservation “can serve as a valuable card in settlement negotiations with an alleged infringer,” particularly one who is unsophisticated in the limitations of such registrations, or “in sales negotiations with a potential buyer of a business,” which will become increasingly prevalent as the cannabis industry in California matures. Id. Until registration of marijuana-based trademarks is legal in California, alternatives for protecting marijuana-related brands in the state are limited.

However, if the company name appears on products, California statutes provide that filing papers of incorporation or a fictitious business name creates a rebuttable presumption of an exclusive right to use that trade name or confusingly similar ones. See California BPC §14411 (filing of fictitious business name creates rebuttable presumption of exclusive right to use that name or confusingly similar ones, in county where statement is filed); California BPC §14415 (filing of articles of incorporation or certificate of qualification creates rebuttable presumption of exclusive right to use trade name in the state the corporate name set forth in the articles or certificate, as well as any confusingly similar trade name or confusingly similar ones throughout state).

Otherwise, brand protection strategies include federally registering ancillary products where usage does not implicate the CSA, or where it does, seeking registration anyway based on goods and services specimens not implicating the CSA, yet subject to the above-noted risks implicated by the Morgan Brown decision. Practically speaking, even if an application is ultimately rejected by the USPTO, it may still provide notice through clearance searches and so forth regarding the mark holder’s perceived rights. It also may be that if registration is obtained, even a potential invalidation defense may be viewed as worthwhile given the power that federal registration confers, and trademark owners may be willing to bet that infringing defendants may not be willing to press such defenses anyway in light of the costs involved.

A final consideration in terms of seeking federal registration of marijuana-based marks is to file an intent-to-use registration specifying that the goods and services are lawful under the CSA, then hoping marijuana and related products become lawful under the CSA during the time an intent-to-use mark can be extended (approximately three years).  See “CANNABIS CUP” (SN 86278759) (ultimately approving this strategy).  Theoretically, this process could be repeated immediately upon expiration of the intent-to-use application, thereby reserving federal rights in a mark indefinitely for the price of each successive application ($400 per class) plus $125 per class for each six-month extension.

Lastly and perhaps most importantly, however, marijuana-based businesses should strongly consider selling their goods and offering their services as broadly and as early as possible to establish common law rights, and seeking registration based on such use in all states where it is occurring, as state registration is minimally expensive and carries far less scrutiny than federal registration entails.

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