Extract’s legal analyst offers guidance on how to protect your most valuable asset — your brand.
On June 26, Oklahoma celebrated the one-year anniversary of the passage of State Question 788, which legalized medical cannabis. During the first year, thousands of operators obtained licenses and opened their doors for business. If you are a participant in the state’s fastest-growing industry, you should be asking yourself at least two questions: “How do I separate myself from the crowd?” and “How do I ensure my business survives to see the 10-year anniversary?” The answers to these questions might be related.
A productive thought experiment: Imagine your business in 10 years, and identify what you own of value. Your real estate might qualify, but you might rent rather than own. Whatever equipment you have probably has depreciated to a considerable degree. Your inventory is replaceable and also losing weight as you read this article. Put another way, imagine someone wants to buy your business. What are the assets that drive its value?
I suggest an answer: Your brand is your most valuable asset, even if intangible. Your brand is what separates you from others and the reason you attract and retain customers. It comprises your reputation and associated goodwill — it is, or should be, your edge over competitors. If someone wants to buy your cannabis business, the chief interest is likely in your brand equity. Investing in your company’s future value requires investment in your brand today.
One of many important reasons cannabis businesses engage consultants is to develop their brand. One of many important reasons they engage lawyers is to protect it. The latter effort mostly concerns the registration of your intellectual property and enforcement of attendant rights.
The most obvious examples of your intellectual property — and brand equity — are your business name and associated trademarks. For example, the name Nike is a “mark” — as is the brand’s iconic logo — associated with a globally renowned athletic-gear manufacturer. Those marks are nearly synonymous with that brand’s reputation and goodwill.
So how do you choose a good trademark, and what can you do to protect it?
Trademark law exists for the benefit of consumers, even more so than for trademark owners. The primary objective is to protect the public from deception or confusion regarding the source of goods or services. The right to a trademark belongs to the party who makes first use of that mark on commercial goods or services. Accordingly, trademark infringement occurs when a party’s later use of a mark (or a sufficiently similar variation of it) would likely cause confusion among reasonable persons about the source of the goods or services being marketed.
The lesson to be drawn from these principles is simple but profound. Often, the terms that come first to your mind are unoriginal. Probably, one or more businesses are already using them. A quick glance at Oklahoma Medical Marijuana Authority’s (OMMA) business directory illustrates this point. One of approximately a dozen words appears in nearly half of licensed-business trade names. The numerous competitors laying claims to those words collectively limit the strength of these trademarks, just as each user, to some extent, also dilutes another’s brand equity.
These observations should compel prospective trademark owners to clear your mark. An experienced attorney or consultant will search relevant databases to identify registration or exploitation of your proposed mark — or a confusingly similar variation of it — by prior users. The cost of this most basic degree of diligence is small compared to protracted litigation commenced by a trademark holder alleging your infringement. If you remember nothing further from this article, remember this: Clear your mark.
Even if no one else is using it yet, your proposed mark might have other vulnerabilities.
It is helpful to imagine all trademarks falling somewhere on a spectrum ranging from weakest to strongest. On the weakest end of the spectrum are descriptive marks. For example, a dispensary called “OKC Cannabis Club” creates challenges for an intellectual property lawyer; the mark merely describes what the business does. It is difficult to argue that your competitor cannot use purely descriptive terms simply because you used them first. Most consumers are intelligent enough to discern that multiple businesses might share descriptive names.
Next on the spectrum, and slightly stronger, are suggestive marks. A dispensary name such as “Dank Nugs” does not merely describe the goods being offered, but it is strongly suggestive of the character of the store’s inventory. These marks are stronger — easier to protect — than descriptive marks. Consumers might reasonably believe that two stores named “Dank Nugs” share a common operator. Even so, suggestive marks are not the strongest imaginable.
Arbitrary marks are stronger. Apple has no inherent connection to mobile devices, but its association is obvious to most consumers due to the branding efforts of a particular trademark holder. Arbitrary marks are quite strong. They generally provide broad protection against use of the same mark on similar goods or services.
Finally, fanciful marks are the strongest. These are marks that had no obvious significance at all but for the trademark holder’s branding efforts. Xerox was a meaningless term before it was invested with the singular meaning ascribed to it by a printing and copying company. Fanciful marks are the easiest to protect but present other challenges for a startup business; it took significant effort and resources to make Xerox a recognizable brand name.
Each class of trademarks presents its own advantages and benefits. A descriptive or suggestive mark is the most readable and easiest to popularize. An arbitrary or fanciful mark is comparatively stronger but requires additional initiative to familiarize the public with your brand. Choosing the right trade name for your business is a matter that requires careful attention and calculation.
Once you have chosen a trademark and put it to use, you should register it. Even though prior use establishes common-law trademark rights, there are clear advantages to registration. It creates a legal presumption that you own the mark, and it also provides legal notice to any potential infringers.
Importantly, the ability to register your trademark with the federal government is limited. United States Patent and Trademark Office denies applications for registration of any mark for unlawful goods and services, quixotically including medical cannabis, even if legal under state law. Until this changes, you will not be able to register your mark for cannabis-related goods or services. You might, nonetheless, decide to register your mark for non-cannabis goods or services. This is especially strategic if you have a particularly novel trademark or plans for your business to expand to a national market.
Like other states that legalized it, Oklahoma registers trademarks for medical cannabis. You can obtain protection of your mark within Oklahoma by registering it with the secretary of state. For some industry participants with no plans to expand beyond Oklahoma — such expansion is presently complicated by protectionist laws in most legal-cannabis states — this protection might suffice. For anyone operating a canna-business in Oklahoma with a recognizable mark, state registration is probably advisable.
Once registered, your rights require enforcement. This can be controversial — many in the cannabis industry do not relish picking fights with others — but nevertheless necessary. Those who sleep on their trademark rights do so at their own peril.
Trademark holders cannot selectively enforce their rights, and failure to do so against any infringer might be presented as a defense by a subsequent one. As such, you must police your mark and take action against anyone who infringes on it. This will not make you the most popular business owner at industry happy hours, but it might protect you against unimaginable harm.
Allowing another entity to mislead the public about the affiliation of their goods or services with your brand places your reputation in the hands of another. No responsible business owner should permit this. The mistake or misjudgment of another company should not influence your reputation, and your customers should have confidence that a product bearing your mark will reliably meet their expectations of quality. Even occasional tolerance of trademark infringement might put your entire brand in jeopardy.
Moreover, a failure to enforce your trademark rights in one instance might limit your ability to do so in another. Courts are wont to find that acquiescence to infringement by some undermines the exclusivity of your mark when it comes to others. There is, therefore, good reason to enforce your trademark rights against any and all infringers, even when you might not wish to ruffle feathers. Again, neglect of your trademark rights in one case might limit their enforceability in a later, more objectionable scenario.
Your trademark rights are inseparable from your brand equity. If you intend to enhance the value of your brand — a task inseparable from enhancing the value of your company — then you should carefully select your trademarks, register them and enforce your attendant rights against your competitors. No other asset is more valuable or — in this industry perhaps more than others — more vulnerable than your brand.
J. Blake Johnson
Extract Legal Analyst
J. Blake Johnson is the founder of Climb Collective and a partner in Overman Legal Group, representing some of the biggest cannabis brands in Oklahoma. The preceding is intended to be generally informative but should not be interpreted as specific legal advice. If you are involved in the cannabis industry and have legal questions, you should seek legal counsel from an attorney with whom you have an attorney-client relationship and who is familiar with your particular legal needs.
Previously published on Extract, July 19, 2019.