Entrepreneurship and Legal Uncertainty: Unexpected Federal Trademark Registrations for Marijuana Derivatives

• DOI: http://doi.org/10.1111/ablj.12118
• Date: 01 March 2018
• Published date: 01 March 2018

Entrepreneurship and Legal

Uncertainty: Unexpected Federal

Trademark Registrations for

Marijuana Derivatives

W. Michael Schuster* and Jack Wroldsen**

Though several states have legalized marijuana use, the drug remains illegal under

federal law. Not surprisingly, the United States Patent and Trademark Office

(USPTO) refuses to register trademarks related to marijuana because of the federal

prohibition. What is surprising, though, is the willingness to grant trademarks for

cannabidiol (CBD), a marijuana derivative that is likewise expressly illegal under

federal drug laws. This article explains why the USPTO’s divergent treatment of

trademark applications for CBD and marijuana products is legally incoherent.

Additionally, when viewed from an entrepreneurial perspective, this phenomenon

exemplifies how legal uncertainty breeds entrepreneurial opportunity. Specifically, the

article argues that the evolving regulatory landscape for CBD and marijuana

products has been and continues to be ripe for legal strategists and innovative

entrepreneurs to combine forces to create competitive advantage in the emerging

marijuana industry.

INTRODUCTION

Although marijuana is legal in some states, the United States Patent and

Trademark Office (USPTO) refuses to grant trademarks covering mari-

juana products because federal law prohibits the drug. The USPTO’s

*Assistant Professor of Legal Studies at the Oklahoma State University Spears School of

Business.

**Attorney at Bold Legal LLC in Denver, Colorado.

We would like to thank the participants at the 2017 Junior Business Law Colloquium

hosted at the University of Colorado–Boulder, and the 2016 and 2017 Academy of Legal

Studies in Business’s annual conference attendees for their valuable and insightful

commentary.

V

C2018 The Authors

American Business Law Journal V

C2018 Academy of Legal Studies in Business

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American Business Law Journal

Volume 55, Issue 1, 117–166, Spring 2018

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position is unremarkable except for the fact that trademarks are freely

available for an equally illegal marijuana alternative called cannabidiol

(CBD), a chemical derived from the marijuana plant. This article pro-

vides the first analysis of the disparate treatment these legally equivalent

market competitors receive, whereby CBD has a clear path to federal

trademark registration, but marijuana faces unequivocal denial of fed-

eral protection.

This article argues that this divergence is attributable to entrepre-

neurs exploiting uncertainty surrounding CBD’s legality to persuade

trademark examiners to register CBD marks. Viewed beyond the partic-

ularities of intellectual property, the issue implicates the literature on

law and entrepreneurship and highlights how innovative organizations

capitalize on legal uncertainties to create competitive advantage. Disrup-

tive entrepreneurship, or business innovation that challenges the status

quo, frequently thrives in the uncertain borderlands between what is

legal and illegal.

1

This article makes two scholarly contributions. First, it analyzes the

USPTO’s inconsistent treatment of trademark applications for CBD and

marijuana within the context of the federal government’s position that

both drugs are illegal. Second, the article integrates the analysis of CBD

trademarks into the growing literature on how innovative entrepreneurs

disrupt legal regimes for strategic advantage.

Part I briefly reviews the literature on how entrepreneurs create com-

petitive advantage by capitalizing on legal uncertainty. Part II provides

an overview of the seemingly inconsistent state and federal laws cover-

ing marijuana and its derivatives, such as CBD. This part also lays the

groundwork for analyzing marijuana-based trademarks by examining

the law and policies underlying state and federal trademark regimes.

Part III sets forth the heart of this article’s analysis of the USPTO’s

inconsistent, even incoherent, treatment of CBD trademark applications.

Specifically, Part III evaluates all CBD trademark applications and

explains why it is incongruous for the USPTO to grant trademark regis-

trations for CBD, while denying them for legally equivalent marijuana.

Part IV offers several policy recommendations and connects the legal

uncertainty surrounding marijuana businesses to larger themes of dis-

ruptive entrepreneurship and strategic management.

1

CLAYTON M. CHRISTENSEN,THE INNOVATOR’SDILEMMA 47–54 (2011).

118 Vol. 55 / American Business Law Journal

I. ENTREPRENEURSHIP AND LEGAL UNCERTAINTY

Entrepreneurs exploit uncertainty.

2

Although entrepreneurship thrives

in stable legal systems with predictable laws, it is nonetheless true that

legal uncertainty generates entrepreneurial opportunity.

3

Some of the

most successful innovators of recent times enjoy tremendous success

despite, and sometimes because of, significant legal uncertainty.

For instance, Airbnb’s innovative platform for short-term rentals has

led to a market value of $30 billion after only eight years of operation.

4

Yet the company frequently encounters conflict and opposition due to

the legal uncertainty that surrounds its business model.

5

By providing

an online platform for people to rent out their homes on a short-term

basis, Airbnb allegedly violates hotel and occupancy laws.

6

But those

laws were established before Airbnb’s business model had been

invented, so are they even applicable? After all, Airbnb is not a hotel; it

is an online platform and intermediary. Likewise, the people renting

out their homes on the site are not hotel operators; they are private

homeowners.

7

Should these distinctions and characterizations matter for

legal purposes? If so, should different regulations, or no regulations at

all, apply to the practice that Airbnb facilitates? In short, Airbnb’s inno-

vative business model creates and exploits legal ambiguity.

As regulators scramble to design new legal paradigms to adapt to the

sharing economy that Airbnb epitomizes, the company continues to

2

See, e.g., David E. Pozen, We Are All Entrepreneurs Now,43WAKE FOREST L. REV. 283, 292–

93 (2008) (discussing economic theory on entrepreneurial uncertainty, including influential

scholars such as Israel Kirzner, Joseph Schumpeter, and William Baumol).

3

D. Gordon Smith & Darian M. Ibrahim, Law and Entrepreneurial Opportunities,98CORNELL

L. REV. 1533, 1550–69 (2013).

4

Sara Ashley O’Brien, Airbnb’s Valuation Soars to $30 Billion, CNN (Aug. 8, 2016), http://

money.cnn.com/2016/08/08/technology/airbnb-30-billion-valuation/.

5

Michael Abramowicz, Cryptoinsurance,50WAKE FOREST L. REV. 671, 674 (2015).

6

Thomas Dickerson, A Look at Airbnb’s Legal Battles Across the US,LAW 360 (May 9, 2017),

https://www.law360.com/articles/921602/a-look-at-airbnb-s-legal-battles-across-the-us.

7

For a breakdown of who is renting out rooms on Airbnb, see John W. O’Neill & Yuxia

Ouyang, From Air Mattresses to Unregulated Business: An Analysis of the Other Side of Airbnb

(2016), http://hhd.psu.edu/media/shm/Center-for-Hospitality-Real-Estate-strategy/files/

AHLA_Airbnb_Summary_2016_May_National.pdf.

2018 / Unexpected Trademarks 119