Tag Archives: protect

How to Protect Your Brand From Counterfeiters

By Gail Podolsky
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Global counterfeiting is expected to reach $1.82 trillion by 2020.1 Counterfeiting includes, but goes way beyond, fake watches or bogus polo shirts. In fact, no product is safe, including cannabis.

Counterfeiting is insidious; it supports child labor, human trafficking, organized crime, and has been linked to terrorist groups.2 “[C]ounterfeit good sales have been linked to al-Qaeda, FARC, Colombia’s rebel army and paramilitary groups in Northern Island.” 3 The FBI believes that counterfeit goods financed the World Trade Center bombing and the attack on September 11, 2001.4

Counterfeiters and their fake merchandise are typically difficult to locate and remove from the marketplace. Currently, we are seeing a proliferation of counterfeiting in the cannabis industry. Cannabis companies must consider the impact that counterfeit products have on their brand and goodwill. It is vital for cannabis companies to implement strategies to combat counterfeiting.

Typically, companies use trademark laws to combat counterfeiters. However, brand protection for cannabis companies is difficult because trademark laws do not provide the breadth of protection needed to successfully protect and enforce a cannabis company’s brand. Currently, U.S. trademark laws prohibit the registration of cannabis trademarks because selling cannabis violates federal law.5 While the 2018 Farm Bill amended this steadfast rule slightly, it only applies in limited circumstances, i.e., when the cannabis product contains less than 0.3% THC.6 As a result, cannabis companies are forced to seek protection through indirect registration, namely filing for goods and services that are not cannabis-related, such as clothing, publications or medical services. Indirect registrations are not enough to combat counterfeiters successfully.

Fortunately, there is another avenue that cannabis companies should be using to protect and enforce their brands against counterfeiters — obtaining copyright registrations for the company’s logo, product packaging and, if appropriate, company name. Copyright protection extends to a protectable work regardless of whether the copyright is in an illegal work or the copyright owner uses its copyright for an illegal purpose.7 Moreover, if there is pending or prospective litigation, a brand owner may request special handling of a copyright application to obtain expedited processing.8 If the application meets all the requirements for registration, special handling will result in the brand owner obtaining a copyright registration in about a week.9 Trademark registrations, on the other hand, typically take at least five months to obtain.

Once a company receives a copyright registration, the Copyright Act provides unique and important avenues for relief against counterfeiters.10 For example, a brand owner may obtain an ex parte seizure order, which allows the company to enter the counterfeiter’s premises, without notice, and seize the counterfeit products, business records, financial information relating to the counterfeit operation, customer and vendor lists, and bank account information.11 A brand owner may also obtain injunctive relief — a court order prohibiting the counterfeiter from buying, selling, and advertising counterfeit products — and freeze the counterfeiter’s bank accounts.12

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company.A cannabidiol (CBD) company recently used its copyright registrations to stop counterfeiters from advertising and selling counterfeit CBD gummies and oils. The CBD company obtained an ex parte seizure order, injunction and asset freeze, and obtained a $5 million judgment against the counterfeiters.13

Litigation is a valuable and effective tool in fighting counterfeiting. It helps protect the company’s goodwill, enhances consumer confidence and increases the company’s revenues. There are other tools that should be used to combat counterfeiting.

Companies must diligently watch their vendors, distributors, and customers for bad actors. Your vendor agreements should include provisions allowing regular audits and inspections. Your distribution agreements should prohibit distributors from selling outside their territory and engaging in price arbitrage. Your customers should be prevented from selling your products in smaller units. Having unique packaging with holograms will also assist in reducing counterfeits as the packaging is harder to replicate. An effective public relations campaign that includes educating your customers and the industry on the harmful effects of buying counterfeit cannabis products is also a very effective tool.

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company. Counterfeit cannabis products can be subpotent, superpotent or contaminated. Having these dangerous products advertised under your brand in identical packaging can have dire consequences.

If you are not currently experiencing a counterfeiting problem, you likely will. It is important to be proactive and find attorneys that have experience combatting counterfeiters in the cannabis industry to help protect your brand and company.

References

  1. Global Brand Counterfeiting Report 2018-2020 – ResearchAndMarkets.com, AP News (May 15, 2018), https://www.apnews.com/ef15478fa38649b5ba29b434c8e87c94.
  2. Colleen Jordan Orscheln, Bad News Birkins: Counterfeit in Luxury Brands, 14 J. Marshall Rev. Intell. Prop. L. 249, 259 (2015).
  3. Id. at 260.
  4. Id.
  5. Examination of Marks for Cannabis and Cannabis-Related Goods and Services after Enactment of the 2018 Farm Bill, USPTO (May 2, 2019), https://www.uspto.gov/sites/default/files/documents/Exam%20Guide%201-19.pdf.
  6. Id.
  7. See, e.g., Flava Works, Inc. v. Gunter, 689 F.3d 754, 756 (7th Cir. 2012); Dream Games of Ariz., Inc. v. PC Onsite, 561 F.3d 983 (9th Cir. 2009); Mitchell Bros. Film Grp. v. Cinema Adult Theater, 604 F.2d 852, 855 (5th Cir. 1979); Big Daddy Games, LLC v. Reel Spin Studios, LLC, No. 3:12-cv-00449, 2013 WL 12233949, at *16–17 (W.D. Wis. Apr. 10, 2013).
  8. Special Handling, U.S. Copyright Office, https://www.copyright.gov/help/faq/faq-special.html (last visited November 20, 2019).
  9. Id.
  10. See 17 U.S.C. § 503(a)(3).
  11. Id.
  12. Id.
  13. See Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3281321 (N.D. Ga. May 16, 2019); Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3244489 (N.D. Ga. July 18, 2019).

How to Protect Your Business from the Emerging Vaping Crisis

By Tom BeLusko, Kelly McCann
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The year 2020 may become a pivotal year for cannabis operators and service providers, including increased access to financial services, and increased exposure to product liability lawsuits. On a positive note, if enacted, the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act) promises to enable cannabis businesses to gain access to financial services previously unavailable to them, including banking and insurance services. The House of Representatives passed the SAFE Banking Act of 2019 on September 25th, 2019. Skopos Labs, an automated predictive intelligence service, predicts there is a 52% chance of the SAFE Banking Act of 2019 becoming law. A recent discovery that vitamin E acetate is likely the culprit in the vaping-related illness epidemic may increase the exposure to costly litigation that cannabis businesses face.

An uptick in litigation like that currently affecting the vaping industry may soon affect cannabis businesses. More litigation affecting the vaping industry is due in large part to the growing number of lung injuries and deaths linked to vaping. As of November 13th, 2019, the CDC reported 2,172 cases of lung injury, and 42 deaths linked to vaping. The cases of lung injury and death have predictably resulted in an increase in litigation facing the vaping industry. Most of the plaintiffs in these cases allege they became addicted to vaping but at least two lawsuits go further. In one, a Connecticut man alleges that he suffered a massive, debilitating stroke as a result of vaping, while in another the parents of a teenage girl allege in a proposed class action suit that their daughter has suffered seizures linked to vaping. On November 14th, 2019, the CDC identified vitamin E acetate as a chemical of concern among people with vaping use associated lung injury. Vitamin E acetate is an additive commonly used as a cutting agent in vape cartridges. About 86% of individuals who have either vaping-related lung injuries, or died due to vaping had used a product containing THC.

The increase in perceived exposure cannabis businesses face has increased their interest in obtaining insurance, but unfortunately insurers are not always interested in insuring them. There are at least two reasons that getting insurance can be difficult for cannabis businesses: (1) insurance industry appetite for cannabis risk is very low due to its status under federal law and (2) express coverage exclusions or limitations of cannabis exposures from standard-form coverage are becoming more common. However, even if cannabis businesses are able to obtain insurance, their insurance may cover them for far less than they believe.

The product liability coverage (which is increasingly crucial for both growers and manufacturers given the mounting litigation facing the vaping industry) may cover far less than it at first appears. The interplay of exclusions and limited coverages in many cannabis-specific policies may leave a cannabis business uninsured.

It is vital now more than ever to ensure you are properly protected against loss.Crucial for cannabis businesses to appreciate is the distinction between “occurrence” and “claims-made” coverage triggers as it relates to both the premises on which cannabis businesses operate their business, and the products they sell.

Many cannabis businesses have an occurrence-based general liability insurance that might actually exclude: (1) product-liability risks; (2) any tobacco-related risks; and (3) any risk associated with governmental investigation or enforcement. These exclusions oftentimes concern cannabis businesses because there is a high likelihood one of these risks could manifest itself as an uninsured loss. Still, the costs of eliminating these exclusions in an occurrence-based general liability insurance policy is often large, assuming an insurer is willing to eliminate the exclusions on an occurrence basis at all. Therefore, cannabis businesses often pair their general liability insurance policy with a “claims-made” coverage trigger for products liability. Navigating the waters of managing the differences between “occurrence” and “claims-made” forms are best left to a qualified and experienced insurance professional.

Consult a local insurance professional that understands how to help your business become properly protected in what would be considered a tumultuous market for this burgeoning industry.

It is vital now more than ever to ensure you are properly protected against loss. As a first step, you must determine what your current insurance policy does and does not cover. After a loss, it is too late to change policies. Rely upon someone that knows the market of insuring this industry and has deep experience in managing both occurrence and claims-made policies.

Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 5

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the fifth article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3 raised the issue of plant breeders’ rights and Part 4 discussed trademarks and protecting brand identity. Part 5, below, will detail copyright laws for cannabis companies and how they can protect works of creative expression.

Copyright: Protection for Works of Creative Expression

In the course of describing and marketing its products, the cannabis producer will prepare or have prepared any number of articles, instructions, write-ups, photographs, videos, drawings, web site designs, packaging, labeling and the like. Copyright protects all such literary and artistic works from being copied by another.

Copyright arises upon the creation of the work, although one can register the copyright under the Copyright Act for a minimal cost.Canada’s Copyright Act provides that the owner of copyright has the exclusive right to make copies of copyrighted work for the lifetime of its author, and for fifty years thereafter. The Court will enforce this copyright, stopping infringements and ordering infringers to compensate the owner in damages, accountings of profits and delivery up of infringing material for destruction. Intentional copying or renting out of a copyrighted work is also an offence that can attract imprisonment. The owner of a copyright can also request the seizure of infringing articles being imported or exported in Canada.

Copyright arises upon the creation of the work, although one can register the copyright under the Copyright Act for a minimal cost. Registration creates a presumption that copyright subsists in the work and that the registrant is the owner, presumptions that can simplify copyright proceedings. In litigation, the fact of registration also removes the ability of a defendant to argue that it did not have notice of the copyright, a factor relevant to the Court in awarding a remedy.Copyright protects all such literary and artistic works from being copied by another. 

There are two aspects of copyright law that tend to cause confusion. The first involves the distinction between the right to use a copyrighted article and the copyright itself. To illustrate, consider the sale of a literary work, such as a book. The purchaser acquires the physical book but not the copyright. The purchaser can use the physical book and can sell that book to another.  What the purchaser may not do is make and sell another copy of the book. Making copies is the exclusive right of the copyright holder.

The second involves the ownership of a commissioned work. The first owner of a copyright is either the author of the work or the employer of the author if the author creates the work in the course of his or her employment. Ownership of copyright can only be transferred by written assignment. Further, the author of a work is granted moral rights in the work, meaning the right to be associated with the work and the right to its integrity. These rights can be waived by the author but not assigned.

Ownership of copyright can only be transferred by written assignment.Therefore, if a company hires a third party supplier to prepare copyrightable work, such as brochures, artwork or web sites, and does not secure an assignment of the copyright and wavier of the author’s moral rights as part of the transaction, that supplier will own the copyright in the resulting work and the author of that work will have the right to insist on his or her moral rights. The hiring company will not have the right to make or authorize others to make copies of the work, to amend the work, to derive new works from what was delivered, or to use the work without reference to the name of the author or in a way so as to offend the author’s integrity. The supplier will also be free to sell the same brochures, artwork or web sites to other companies, or to derive other works from it. All of this is so even though the hiring company paid for the work to be done. This result is often surprising and disappointing to hiring companies.

Accordingly, cannabis producers contracting with the third parties for literature, photographs, web sites and the like will need to think about how they want to use the work in the future. It is simplest if the producer contracts to have the owner assign the copyright in the work to the producer upon creation, and deliver the author’s waiver of moral rights. While the third party will likely charge more for an assignment of the copyright and the waiver of moral rights, it may be worth avoiding negotiations over specific uses and how the author is to be credited, as well as avoiding the uncertainty inherent in trying to imagine how the producer will use the material in the future.

In the 6th and final part, Naiberg will summarize the key takeaways from his series that cannabis companies can use to protect their intellectual property in Canada.

Senate Committee Votes to Keep Medical Cannabis Protections

By Aaron G. Biros
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The Senate Appropriations Committee approved the amendment to continue protecting state-legal medical cannabis markets from the Department of Justice. The amendment, previously known as the Rohrabacher-Farr Amendment, prevents the DOJ from using funds to target medical cannabis operations, patients and businesses in states where it is legal.

Every time Congress reviews the budget, this amendment needs to be included to keep protecting the medical cannabis community. While the rider still needs to make it through the final version of the appropriations bill, it is a big win for the status quo.

According to Aaron Smith, executive director and co-founder of the National Cannabis Industry Association (NCIA), this indicates that Congress is resisting Attorney General Jeff Sessions’ calls to end the protections. In a letter sent back in May, Sessions urged the Senate on both sides of the aisle to stop protecting medical cannabis.

Many see this morning’s vote as Congress standing up to Jeff Sessions, and standing up for medical cannabis patients. In a letter to NCIA members, Smith says that a lot of work still needs to be done, but this is an important first step. “This is not the end of the story. There are still many steps to go before a new budget is finalized,” says Smith. “But this is an important indicator that our allies in Congress are standing up for us, even in the face of DOJ opposition.” In an official NCIA statement, Smith acknowledges the hurdles that still face the amendment. “Now it’s time for the House to do the same,” says Smith. “Patients deserve access to care, states deserve respect, and members of the House deserve the opportunity to vote on amendments like this that have the strong support of their constituents.” Bipartisan support like this in Congress is needed to prevent the current administration and the DEA from meddling in states with legal medical cannabis.