The Supremacy Clause and Trademarks: Why State Cannabis Legalization Isn't Enough for a Federal Trademark
Recently, we published an article regarding the increasing viability of cannabis related patents. See here.Sadly, the story is the opposite for federal trademarks. Last month, National Concessions Group, Inc. ("NCG") was denied federal registration for its trademarks: BAKKED and
(collectively the "Marks") by the United States Patent and Trademark Office ("USPTO").
The USPTO asserted that the marks were for "drug paraphernalia" violating the Controlled Substances Act (the "CSA") and therefore couldn't be registered. NCG argued that its goods were not drug paraphernalia, and that Colorado state law permitted NCG to sell its goods.
If state law permits the sale of the goods, then shouldn't NCG be able to protect their branding in connection with the goods? The Trademark Trial and Appeal Board (the "Board") in a precedential, i.e., binding, opinion said no. The Board held that state law allowing the sale of drug paraphernalia within a state cannot serve as the basis for a federal trademark registration. The Supremacy Clause, setting out that federal law trumps state law, smoked NCG's chances at registration of the Marks.
Marijuana is regulated as a controlled substance under the Controlled Substances Act ("CSA") except for cannabis and cannabis derivates that include no more than 0.3 percent delta-9-tetrahydrocannabinol ("THC") on a dry weight basis, i.e., "hemp." Drug paraphernalia associated with a controlled substance is similarly illegal. This includes any equipment, product, or material that is primarily intended or designed for use in producing, processing, or ingesting into the human body a controlled substance.
The CSA provides two exemptions concerning drug paraphernalia where the CSA does not apply: 1. any person authorized by local, state, or federal law to manufacture, possess, or distribute such items (the "Authorization Exemption"); and 2. any item that is traditionally intended for use with tobacco products, including any pipe, paper, or accessory (the "Tobacco Exemption").
NCG filed applications for each of the Marks for an "essential oil dispenser, sold empty, for domestic use." NCG submitted evidence of use of the Marks in commerce featuring use of a third mark, THE DABARATUS, on the essential oil dispenser itself. The Examining Attorney at the USPTO relied on evidence touting THE DABARATUS device as used for "dabbing" in their refusals to register the Marks.
For those in the know, dabbing can refer to a playful dance or gesture used in midst of a triumph (such as by Usain Bolt at the finish line) or a method for inhaling cannabis. The Board described dabbing as a means or method of inhaling superheated cannabis concentrates for a quicker high than other methods of ingestion.
NCG's website touted THE DABARATUS device as "the all in one tool for dabbing" that is pre-filled and delivers "the perfect dose of cannabis extract." Several third-party websites also promoted THE DABARATUS device as an all in one tool pre-filled with cannabis distillate.
NCG argued that its goods were not drug paraphernalia under the CSA because they can be used for alternate purposes including dispensing essential oil for vaping tobacco. And even if the goods were drug paraphernalia, the exemptions to the CSA, i.e., the Tobacco Exemption and the Authorization Exemption described above, applied.
NCG analogized its goods to razor blades and postage scales, which can be used to cut and weigh illegal drugs. But most of us have different purposes for buying these goods, i.e., shaving and weighing letters.
The Board acknowledged that the goods included in the application were not unlawful on their face. But the record established that the goods often came pre-filled with cannabis distillate. And were primarily intended for use in connection with inhaling marijuana via dabbing (thus THE DABARATUS device). Therefore, the Board held that the goods were drug paraphernalia and the Tobacco Exemption did not apply.
Turning to NCG's Authorization Exemption argument, the Board found it was perhaps a matter of first impression. NCG's home state is Colorado, where the sale of medical and recreational cannabis and corresponding goods are legal under state law. NCG argued that it is therefore an authorized person under Colorado state law such that its distribution of the applied-for goods was not in violation of the CSA.
The Board noted that NCG's rights in a federal trademark would not be limited to Colorado. Granting NCG a federal trademark registration would give NCG presumptive exclusive rights to nationwide use of the Marks in connection with the goods at issue, not just in Colorado.
The Board found the Authorization Exemption was tied to a geographic area, i.e., NCG is authorized to sell cannabis goods in Colorado. Colorado state law does not authorize NCG to sell cannabis goods outside of Colorado.
The Board therefore held that when the Authorization Exemption is based on State law, it does not support federal trademark registration.
The USPTO and TTAB continuously remind us that each application must be considered on its own record when determining registrability of a trademark. NCG's advertising made it clear that THE DABARATUS tool was primarily intended to be used for inhaling marijuana. But it's unclear whether NCG would have faced the same refusals if THE DABARATUS tool was only sold empty or marketed for use with cannabis goods not in violation of the CSA, i.e., hemp.
Cannabis industry professionals seeking federal trademark protection should be mindful of the rights afforded by state and federal law. Even without a federal registration, a mark may be protected, albeit to a lesser extent, under "common law," i.e., state law. But the intended use and advertising of the goods under an applied-for mark may impact the chances of obtaining a federal registration. At least for today though, the cannabis industry may find this precedential decision isn't worth a dab.
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