So, you’re ready to make money off your hemp-related intellectual property (IP)? You have managed to develop a cultivar that consistently yields a high percentage of cannabidiol (CBD) and a low percentage of tetrahydrocannabinol (THC). Naturally, you believe you’ve got something special on your hands that people will line up to pay for. And you’d be correct. With proper IP protection, you can easily license the right to use that cultivar and watch the money flow in. Right? Well, not so fast.
The process of obtaining IP protection is not as straightforward as you think, and the competition is fierce. The threshold to prove your uniqueness is high.
Following the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), the “unicorn” that everyone is chasing right now is a cultivar of hemp that guarantees high CBD and low THC, says Corey Cox, J.D., an attorney in Vicente Sederberg’s Denver office.
“We are seeing a huge push right now toward proprietary hemp genetics and unique varieties of the hemp plant,” says Cox, who specializes in regulatory compliance for hemp and marijuana businesses. “People are trying to develop these varieties and protect them from use by competitors. And some want to only license their IP, so they don’t have to have any physical manufacturing capabilities. They simply want to license their genetics to production partners.”
This hemp IP rush can be attributed to new federal testing guidelines. To be legal under the 2018 Farm Bill, hemp must test at or below 0.3% THC—the main psychoactive compound in marijuana. If your hemp crop tests above the 0.3% limit, you’ve got what is known as “hot hemp,” which to the federal government essentially means you grew illegal marijuana. According to most state statutes, those hemp crops must then be destroyed. That puts a premium on good genetics. And while genetics are not the only factor involved in a crop’s final CBD and THC levels, they are an essential foundation
“Having hemp seeds that you know are not going to test high for THC—and can be reproduced without complication—is a really, really big deal,” says Dale Hunt, Ph.D., J.D., a plant scientist, cannabis lawyer and registered U.S. patent attorney with over 20 years of experience protecting plant varieties.
But while IP licensing may soon become big business in the hemp industry, the devil is in the details. U.S. IP law and regulations, along with the 2018 Farm Bill itself, have far more nuances and complexity than many people understand up front.
To separate fact from fiction, Hemp Grower spoke with IP experts who offered three imperatives to help you not only protect your intellectual property but also profit from it.
1. Study Your Options.
The U.S. Patent and Trademark Office (USPTO) provides different protections for different kinds of intellectual property. As a starting point, hemp businesses should understand the key differences between at least two types of patents: a plant patent and a utility patent.
A plant patent is granted to someone who invents or discovers—and asexually reproduces—a distinct and new variety of plant (other than a tuber-propagated plant or a plant found in an uncultivated state). As Sterne, Kessler Goldstein & Fox P.L.L.C. attorneys Pauline Pelletier, J.D., and Deborah Sterling, J.D., explain in a recent blog post, plant patents offer protection for asexually propagated plants (clones having identical genetics to those of the patented plant), but they do not protect sexually produced plants (those cultivated by seed). A plant patent, in essence, provides legal protection from a competitor who grows your specific cultivar from a clone.
A utility patent, on the other hand, is granted to someone who creates a new or improved—and useful—product, process or machine. A utility patent offers much broader protections than a plant patent. It protects your unique seeds and the various chemical compositions of the plant—not just the clone.
“While a plant patent covering a commercially valuable strain for cloning purposes certainly has value, its scope is bounded to the genetics of the patented plant and leaves room for sexual reproduction (e.g., seed farming),” Pelletier and Sterling wrote in their blog post. “By contrast, a utility patent covering a non-naturally occurring strain, where the claim is defined in terms of the plant’s novel characteristics, could make the avoidance of infringement more difficult and thus serve as stronger patent protection.”
Hunt explains a plant patent is like a copyright on a single cultivar—it protects against illegal clonal copying of the exact genotype of the claimed cultivar. In contrast, a utility patent treats a cultivar as an invention.
One other way exists to protect IP associated with plant varieties. In addition to legalizing industrial hemp, the 2018 Farm Bill opened the possibility for hemp IP protection through the U.S. Department of Agriculture’s Plant Variety Protection Office, which provides intellectual property protection to breeders of new varieties of seeds and tubers for 20 years.
Plant Variety Protection (PVP) essentially protects seeds from being “copied” in bulk to compete with the owner of the variety. However, it permits use of the seeds for breeding to make other new varieties. This is called the “breeder’s exemption.” PVP rules also expressly permit the purchaser of protected seeds to keep enough seeds to replant the same acreage as the seeds he or she originally purchased for planting. This is called the “farmer’s exemption.”
In sum, while plant patents apply to asexually propagated plants, utility patents may apply to genes, traits, methods, plant parts and varieties. Additionally, PVP is now available for seeds and tubers.
2. Let the Business Be Your Guide.
No one-size-fits-all solution exists in plant IP, especially with a plant like cannabis that can be propagated via seeds or clones. This is why companies should let their sales strategy dictate their IP strategy, Hunt says.
So, based on what you sell, what kind of IP protection do you need?
If you make money selling hemp seeds, a utility patent may be your best defense. A plant patent would only be useful if the cultivar that is the source of the seeds is itself so valuable that you would want to control its propagation, Hunt says. The most prominent example of this in the hemp industry is Charlotte’s Web, a popular CBD-dominant strain that has helped countless young patients as an epilepsy treatment and has become a figurehead for the legalization of medical cannabis after its appearance in CNN’s Weed series. In 2019, Charlotte’s Web received what is believed to be the first plant patent for a hemp strain. The plant patent describes “CW2A” as a Cannabis sativa L. cultivar that is capable of producing up to 6.24% CBD and only 0.27% THC. For Charlotte’s Web, a plant patent is like insurance against potential theft of the propagating material of its “seed parent” cultivar. However, that plant patent would not directly fit or support the business of selling seeds; in those cases, you would need a utility patent, since a utility patent protects your unique seeds, not just your clones, Hunt says.
Shifting to another scenario, let’s say you sell clones to nurseries that will propagate and sell more clones to other people. Then you need a plant patent and a license agreement with that nursery requiring it to pay you for every clone it makes and sells, Hunt says.
But if you’re only selling harvested flower or extracts and you do all your own farming, the risk of IP theft or infringement would be negligible, since you would have more control over what potential IP others can access. But Hunt says a grower can still seek IP protection as a form of insurance: a plant patent to protect the genetics in case someone was to take a cutting and start competing with you or a utility patent to claim the genetic line more broadly.
3. Prepare for Legal Battles.
While patent litigation has long been a battlefront for technology-focused companies, IP skirmishes are beginning to expand into the cannabis and hemp industries. In 2018, in the first case of its kind, United Cannabis Corporation (UCANN) sued Pure Hemp Collective Inc., for infringing on its 911 Patent, which covers liquid cannabinoid formulations of a purified CBD and/or THC greater than 95%.
The case serves as a reminder that cannabis and hemp companies must be mindful that production methods, technologies and business processes, as well as product logos and packaging, are all subject to legal protection, wrote Knobbe Martens lawyers Jonathan Hyman, Hans Mayer and Christopher Smith in an article for Hemp Grower’s sister magazine Cannabis Business Times. As laws surrounding production and sale of cannabis begin to relax, companies may be more willing, or even eager, to enforce their intellectual property rights than before, they noted.
As the hemp industry grows, legal battles over awarded patents’ validity may intensify, says Theodore Y. McDonough, J.D., counsel for Carter Ledyard & Milburn.
“People have been experimenting with cannabis and hemp for quite some time behind the scenes, under the radar,” McDonough points out. “Somebody may very well have come up with that CBD formulation a number of years prior, and the question is, is that going to be a ‘prior use’ that would invalidate an otherwise valid patent? We really don’t know yet.” In intellectual-property law, “prior user rights” can serve as a patent-infringement defense. But there has not been much case law to go on.
With growers under pressure to produce hemp that will test below the 0.3% THC limit, all eyes for now are on the genetics.
“Any company that’s involved in genetics has a huge business opportunity in developing these strains, and obviously that takes time and money,” says Nathalie Bougenies, an attorney with Harris Bricken who represents clients who have filed for hemp patents. “As we know, a big part of the value in a company is their IP assets. My advice is to definitely spend the time to prepare a patent application [to] protect your work and make money.”