By Scott Warner
In our June installment on intellectual property and the marijuana industry, we introduced various types of protections that businesses engaged in the industry might use to protect their intangible assets. We continue here to drill down on the first type discussed – trademark.
As discussed previously, trademark rights arise through use in commerce. And, to qualify for registration with the U.S. Patent and Trademark Office (PTO) under the statute and the benefits of nationwide protection, that use must be in interstate commerce (15 U.S.C. § 1051).
And, of course, that’s the rub: businesses licensed to produce marijuana and related products under RCW 69.50.325 are only permitted to sell their products in the state of Washington (See Section 3 of RCW 69.50.325). So, how does a Washington licensee protect its trademark from being used elsewhere by third parties and qualify for federal registration if it can’t sell its products in another state?
First, know that this limitation really only applies with respect to marks that are associated with goods or services that, if offered for sale outside the state of Washington, would violate state or federal law.
Marks that are associated with other products or with marijuana and other products, may still qualify for registration. So, all other things being equal, “Marijuana Venture” would be eligible for federal registration as a trademark if distributed in Oregon, because it is a magazine and its distribution there would not violate state or federal law.
Second, it is possible to establish rights in other jurisdictions where marijuana has been legalized and thus satisfy the interstate commerce requirement without actually sending the products or services associated with the mark across state lines. This could be done via a trademark license under which the trademark owner authorizes a party in a state where marijuana is legal to sell products under the mark in that state. In this way the trademark owner establishes rights in the destination state and qualifies for federal registration.
But a trademark license is not without issues. For example, by statute, a trademark owner must exercise a level of control over the nature of the goods or services sold under the trademark, and establish and require that its licensees meet quality standards with respect to those goods and services (see 15 U.S.C. § 5, 45). And the owner must monitor the licensee’s performance to confirm compliance. Otherwise the license risks being classified as a “naked license” and exposing the trademark to abandonment.
Perhaps more important, exercising (or failing to exercise) control over the licensee’s goods and services may expose the trademark owner to product liability and other claims relating to the licensed products as the “apparent manufacturer.” This doctrine, set out in the Restatement (Third) of Torts: Product Liability, Section 14 (1998), provides that a trademark licensor is “liable for harm caused by defective products distributed under the licensor’s trademark or logo when they participate substantially in the design, manufacture or distribution of the licensee’s products.
In these circumstances they are treated as sellers of the products bearing their trademarks.”
Versions of this rule have been applied in both Washington and Colorado, and thus need to be kept top of mind when considering whether to license.
In the same fashion, trademark licensers may be subject to liability for fraud, misrepresentation and other torts related to the licensed products.
The takeaway is that trademark owners must walk a fine line in order to qualify for registration and avoid liability. While not a silver bullet, requiring indemnities and insurance as part of the license terms can help minimize the risk. That, and monitoring the licensee’s performance in a way that both preserves the mark and does not stray too far into the province of the licensee.
One more thing. The above focuses on only a single issue involved in the registration and maintenance of a trademark. Others abound. For example, care should be taken when handling royalties or other consideration due under the trademark license so as not to trigger federal issues – assuming you can actually find a bank to take deposits and handle the transaction. That is a topic for a future installment.
Scott Warner, of Garvey Schubert Barer Law, provides guidance to clients in intellectual property rights and represents a diverse array of clients, including hospitals, software, hardware and video game companies, and more. He was once named “Washington’s Most Amazing Lawyer” by Washington CEO Magazine.