Written by Cathleen Rocco
There are 3 points you need to take away from this article:
- Federal illegality is IRRELEVANT to patentability.
- Patents are assets and revenue sources, not irrecoverable costs
- You ignore patent protection at your peril.
The following story is true – the names have been changed to protect the innocent.
I have a client who is a cannabis breeder. He is a highly intelligent guy and was an incredibly successful businessperson before entering the cannabis industry. He came to me after selling a bag of elite hemp genetics to a large, publicly-traded biotech company.
Hemp Seeds, Breeding, and Patent Protection
The seed is from an elite ultra-low THC auto-flowering hemp variety. The biotech company paid my client almost nothing for the seed, promising to characterize the variety and incorporate the exceptional genetics in their own breeding program in exchange for royalty fees and an ownership interest in any elite varieties they derived from his. But immediately after he handed over the sack of seed, they informed him they would not honor the license provisions under which they purchased them because he hadn’t filed for patent protection, and then stopped talking to him.
If he had filed before contacting the company, he could have negotiated from a position of strength and could easily have sold his seed for 100 times what he was paid. More importantly, he would be looking forward to future licensing revenue, milestone payments, and maybe even ownership interests in derivative varieties developed from his original variety as the company’s R&D and breeding work progresses.
Hemp and IP Rights
Instead, we’re now in a position of having to claw back IP rights in the handful of jurisdictions in which it is still possible to file, and we face substantial litigation costs to make the biotech company cease and desist using the genetics and/or pay royalty fees for the privilege of continuing.
There are so many lessons to be learned from this situation that it will take me three articles to cover them all. But let’s start by talking about what patents are, and why it’s an excellent idea to be proactive about filing for them instead of needing to do damage control because you haven’t.
Patent rights are a form of intellectual property rights. A patent is a tool that is used to protect technology innovations. A granted patent gives you the right to prevent others from making, using and/or selling the patented invention.
All sorts of inventions are patentable, including inventions that are cannabis-related. For example, there are issued patents on high-THC cannabis plants, cannabinoid formulations, and all manner of cannabis-related inventions.
Cannabis-Related Inventions and Patents
Regardless, most cannabis entrepreneurs believe that cannabis-related inventions aren’t patentable. I think this is due to the industry’s lack of sophistication about intellectual property in general, and the assumption that, if the federal government refuses to register marks when used on goods that are illegal to sell under federal law, they will also refuse to grant patents on those goods.
The advantages of filing patent applications are two-fold. First, they function as an insurance policy, which enables you, through litigation and compelled licensing, to recover the economic damage done when a competitor copies and sells your patented invention.
But patents are more than just an insurance policy. They are also corporate assets that can substantially increase corporate valuation, as well as serve as a revenue stream through licensing or selling the rights. If you have exceptionally creative product development or R&D people, then it is likely they are generating subject matter, which is patentable, but which may not fit into your overall commercialization strategy. If you have filed for patent rights, you can license or sell those assets in order to generate revenue. Most of the money IBM makes is the result of monetizing their IP portfolio, and not from selling products.
Moreover, if a potential joint development partner such as the biotech company in my story knows you are securing patent rights, they will assign an increased value to your product, and they are unlikely to intentionally infringe because of the potential liability involved: intentional infringers are on the hook for up to three times the actual damages they cause.
How do you obtain patent rights? Start by contacting a patent attorney who is licensed to represent clients before the USPTO (there is a separate patent bar, and additionally patent attorneys must have at least a bachelor’s degree in a technical discipline) and who has technical expertise in the same or related field as your invention.
While it is possible to draft and file your own patent application (the USPTO will help inventors acting in pro se), I strongly advise against it – it’s extremely time-consuming to do, and I will guarantee that in the unlikely event you do end up with a patent, the claims will be extremely narrow and easily designed around. Likewise, steer away from online invention companies, the competence of which is questionable at best and in any case not transparent, and have even been known to misappropriate inventions. I have even seen cases where someone had a buddy draft an application. I’ll leave the fall-out from THAT fiasco to another article.
Your attorney will start by drafting an application that describes your invention in enough detail that someone of skill in the field can make and use the invention. Ideally, your attorney will prompt you to tell them about alternative ways to implement and use your invention, so as to expand your original idea as broadly as possible and thereby preserve avenues for future R&D and provide support for broad patent claims that make it difficult for your competitors to “design around” your patent.
The application will then be filed with the patent office, after which is it assigned to a patent Examiner. The Examiner will evaluate the application and either find it patentable or reject it as unpatentable, usually for the reason that it is anticipated or rendered obvious by a scientific publication and/or prior-filed patent application. There is then a period of back-and-forth (termed “prosecution”) between your attorney and the Examiner during which your attorney attempts to rebut the Examiner’s arguments, which may involve amending the patent claims in which you define the elements and limitations used to define the scope of the invention. Once these matters are addressed, the Examiner will either issue a final rejection or allow the claims, which then issue into a patent sometime after the issue fee is paid.
Patent Rights are Territorial
Patent rights are territorial – there is no such thing as an international patent. Therefore, you must file patent applications in every country in which you wish to protect your application, which is usually determined by your marketing plan. Often inventors will also file in countries where counterfeiting activity is known to take place to provide recourse where counterfeit goods are being produced elsewhere and then smuggled into major markets.
It follows that the cost of global patent protection are considerable, however, there are ways to defer those costs for up to 42 months, by first filing a US Provisional Application, and then filing an international Patent Cooperation Treaty application. The Provisional application is not examined, so costs are limited to filing fees and attorney fees for drafting the application. The PCT application is filed on the12 month anniversary of the provisional filing. The applicant then has an additional 30 months to decide whether and where to file internationally.
Altogether the initial outlay can be $10,000 or less for the initial US Provisional filing, and then another $15,000 for the PCT filing. By the time a company must begin to incur the costs of international filings, they presumably have a revenue stream or investment capital to cover them.
Conversely, applicants who have cash to burn and are eager to have rights issue can file a US non-provisional application as their first application along with a petition to make special under the accelerated examination program – if granted, final resolution will occur within a year. A PCT application may be filed simultaneously, or in the alternative, the applicant can file foreign national applications in specific countries once the USPTO grants a foreign filing license.
Federal illegality is irrelevant to the patentability of cannabis-related inventions, even including high THC plant varieties. There are many financial advantages to securing patent protections in the form of negotiation leverage, licensing royalties, and sales of IP assets. Patents are also assets that can substantially increase corporate valuation. Patents discourage copycats and provide recourse in the event that counterfeiting occurs.
You owe it to your business and to your investors to at least consider patent protection for your inventions. Hoban Law Group can help.