Highly patentable: how pot companies are staking claims on legal cannabis

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HIGHLIGHTS

1. Supreme Cannabis spending $14-million to launch a new R&D-focused subsidiary, Cambium Plant Sciences
2. The first-ever court battle over a cannabis-related patent is currently being fought in Colorado
3. Patent lawyers say cannabis companies are starting to build up “arsenals” of intellectual property

When the Supreme Cannabis Co. Inc. gives tours of its 7ACRES cultivation facility, there is one aspect of the production process that guides intentionally skip.

“Our drying and curing technology is very significant for us, so we put a lot of emphasis there and it is actually the one area we really do not show people on tours,” chief executive Navdeep Dhaliwal said. “There was a lot of back and forth on whether to keep that a trade secret.”

Supreme is applying to patent that technology and, in a sign of the increasing focus cannabis producers have placed on protecting their intellectual property, will announce a $14-million investment on Monday to build a new research and development-focused subsidiary in Goderich, Ont., called Cambium Plant Sciences. The mission of the company will be to invent new ways of growing, processing and consuming cannabis, and then potentially licensing those inventions for a new source of revenue.

“We will be getting a lot more aggressive building our [intellectual property],” Mr. Dhaliwal said. “Especially as the industry has advanced so quickly.”

Supreme is far from alone in pursuing a more aggressive cannabis-IP enforcement strategy. In 2016, the the United States Patent and Trademark office issued just 14 patents with the words "cannabis" or “marijuana” in their summaries. The following year, that number more than doubled to 29 patents and, in 2018, the PTO issued 39 cannabis-related patents.

“It is very akin to what happened in the computer space where there was this gold rush to file patent applications for various aspects of internet-based business models,” said Matthew Zischka, a partner at IP-focused law firm Smart & Biggar/Fetherstonhaugh in Toronto. “A lot of the fallout of that was that patents became a very crowded space very quickly and I think we are probably going to see something very similar play out in the cannabis space.”

If the cannabis space really does follow the tech industry in its IP evolution, that would likely come with an increase in businesses focused entirely on acquiring and enforcing patents in a specific industry – often referred to pejoratively as “patent trolls.” The first-ever battle over whether one legal pot product violates the intellectual property rights of another is already playing out in a Colorado courtroom.

Last summer, the United Cannabis Corp. filed suit in the U.S. District Court in Denver against Pure Hemp Collective Inc., alleging its patent on liquid cannabis extracts was being violated. “It is difficult to conceive of any outcome… that will not send shock waves through the cannabis industry,” David Gold, a New Jersey IP lawyer with Cole Schotz, wrote in a blog post shortly after the case was first announced.

“The case really is the first of its kind,” said Nicole Grimm, a partner at McDonnell Boehnen Hulbert & Berghoff LLP in Chicago focused on IP. “There are still big questions about how a patent infringement lawsuit involving a schedule one drug will proceed in a federal court, so we are sort of watching that unravel before our eyes.”

“As we learn more and as this case proceeds, we could really start to see a strategy start to emerge in the cannabis industry where companies do end up with large arsenals of patents that they can use to stake their claims,” Ms. Grimm said.

In the last few years, there has been “such a jump” in the number of cannabis-related companies that want to apply for patents, said Alice Tseng, another partner at Smart & Biggar/Fetherstonhaugh who is also head of the firm’s cannabis IP unit.

“This is very different than more established industries as well,” Ms. Tseng said, “particularly as over the last couple of years there has just been so much IP that it is very difficult to know whether something is patentable or not.”

Many cannabis companies operating in the United States also do not believe they are even allowed to apply for patents because of continuing federal cannabis prohibition, Ms. Grimm said.

“There is still a misconception over whether the patent office would even examine or grant patents related to cannabis inventions, but the reality is the U.S. PTO has been examining and granting cannabis patents for years, tens of years even,” she said. “That said, I believe we are seeing a trend of increased filings as the industry starts to realize that this right is available and that it is important to protect your inventions early.”

In many ways, the coming deluge of pot patent applications promises to be even more chaotic than the “gold rush” of IP protection that occurred in the early days of the dot com era. Unlike in the tech space, where patents mostly relate to software and certain hardware applications, Ms. Grimm said cannabis-related patents can “run the gamut” from formulations for certain medications, to methods of growing and processing cannabis plants to edible products and new consumption technologies such as vape pens and more advanced pipes and bongs.

“Really it is like anything you can think of,” she said.

Even specific strains of the cannabis plant can be the subject of a patent application – and that, Supreme’s Mr. Dhaliwal argues, represents the most substantial profit opportunity.

“The blockbuster potential is in the recreational markets, since among the most valuable pieces of intellectual property, although it is not yet protected, is a strain called Girl Scout Cookies,” he said.

No company is likely to patent the “Girl Scout Cookies” strain anytime soon, however, as some of the cannabis-related patents issued to date are starting to be challenged as overly broad. If United Cannabis wins its current litigation in Colorado, for example, it could force every cannabis producer selling liquid CBD extract-based products to pay licensing fees, Ms. Grimm said, noting the same situation could occur if any single company is allowed to patent the genetic profile of a popular recreational strain.

Earlier this year, British drug giant GW Pharmaceuticals Plc lost an eight-year legal battle to maintain its patent related to the use of cannabinoids in epilepsy treatment. In a ruling dated Jan. 3, the U.S. Patent Trial and Appeal Board sided with one of GW’s main rivals, Insys Therapeutics, in its claim that some of what GW was trying to protect was obvious. Still, only part of GW’s patent was invalidated, meaning various aspects of it remain enforceable.

While United Cannabis is not facing a formal challenge of its liquid CBD extract patent, the company’s history-making decision to attempt enforcement has led some to question whether it could survive a similar validity challenge. Neil Juneja, an attorney with Seattle-based Gleam Law, told a legal trade publication shortly after the suit was filed last year that similar products have existed in the illegal market for decades and are relatively easy to produce.

While Ms. Grimm says a wide swath of the cannabis world remains unprotected from an IP perspective, meaning companies still have time to submit applications with a good chance of getting approved, she notes what companies decide to do now will determine whether they are the ones charging licensing fees in the future, or paying them.

“It really is at the point where the companies already protecting their IP are smart to be doing it now,” Ms. Grimm said “For those that might be hesitating to jump in full force, we are going to see more patent filings as the industry legalizes in the U.S., but at that point it might already be too late.”