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Medical Marijuana Creates Unanswered Trademark Litigation Issues

Ohio’s Department of Commerce is ramping up efforts to begin the state’s medical marijuana program.  Standards and licensing procedures for cultivators, laboratories, dispensaries and others will be set up over the next year, and the program must be fully up and running by the summer of 2018.  But at the same time, the federal Drug Enforcement Agency (“DEA”) is doubling down on the marijuana ban, keeping the drug listed alongside heroin as a top-level controlled substance.

Federal trademark protection comes from a federal statute and is enforced in federal courts.  It is very much an open question how the courts will deal with trademark issues concerning the federally illegal medical marijuana industry.

With respect to federal registration, the Trademark Trial and Appeal Board has roundly rejected trademarks applied to marijuana.  See, e.g., In re Morgan Brown, Serial No. 86362968 (TTAB July 14, 2016).

In Morgan Brown, the applicant’s trademark for the “retail store services featuring herbs” was rejected because there was evidence in the record that: (1) marijuana is an herb; and (2) the applicant sold marijuana, among other things.  Morgan Brown, at 8-9.  Although the applicant might have also sold other herbs, these two facts were sufficient to deny the registration of the trademark.

In other words, if the goods or services description includes a controlled substance, and there is evidence that the applicant does, in fact, sell a controlled substance, the registration will be denied.  Id.  Attempted workarounds have not yet been tested through litigation.

With respect to court decisions concerning trademark and marijuana, there are very few cases to go by.  One example that research revealed is the modest 1988 case of Bambu Sales, Inc. v. Testini.  12 U.S.P.Q.2d (BNA) 1479 (E.D.N.Y. 1988).  In Bambu Sales, the plaintiff accused the defendant of trademark infringement, and demanded an injunction and damages, including potentially lost profits.  The defendant mounted an “unclean hands” defense, alleging that the Bambu Sales purposefully sold its rolling papers for use in rolling marijuana cigarettes.  Bambu Sales moved to dismiss the unclean hands defense.

The Bambu Sales court took a nuanced approach.  It held that in a situation involving some legal and some illegal sales, there is no unclean hands defense as applied to a claim for an injunction.  Id. at 1482.  But as to a claim for damages, the Bambu Sales court held that lost profits could not be recovered for any illegal sales.  Id.  Because Bambu Sales demanded lost profits for all sales, the court allowed the unclean hands defense to remain in the case, and held that any of the plaintiff’s sales that were proven illegal would not be included in a lost profits award.  Id.

It is implied in the court’s reasoning that if the plaintiff’s goods at issue are exclusively marijuana products banned by federal law, then an infringement suit might be wholly barred.  See id.

Even accepting that prediction, which is by no means certain, many issues remain completely open.  Would the unclean hands defense apply in the same way to a state common-law trademark infringement or unfair competition claim?  Could federally illegal sales be used to show trademark seniority, or will they be completely ignored in that analysis?

Further, could a traditional trademark owner recover the defendant’s profits for illegal marijuana sales under the infringing mark?   Or would an intervening federal government agency or the court itself attempt to seize illegal profits for the benefit of the federal government if a civil suit puts them at issue?

Perhaps the most important open issue is the effect that infringing use by a marijuana provider of a traditional company’s trademark will have on the future enforceability of the trademark.  Generally one must police a trademark in order to maintain its strength and enforceability.  But would a federal court really hold trademark owners responsible for failing to police their marks against sellers of marijuana, even though the marijuana sales are federally illegal?  Isn’t that the DEA’s and the FBI’s job?

These are only some of the many open questions.  Rarely do U.S. courts encounter such a wide area of unsettled law in an industry with billions of dollars at stake each year.  One can expect significant new law to be made in the near future.  In the meantime, careful litigation positions and thoughtful long-term legal strategy are in order when medical marijuana sales are involved in either side of the case.