Protecting Your Ideas: The Good, The Bad & The Ugly

My heart got ripped out because I put all my heart into my products. I cried at a High Times event as they awarded the people who stole one of my first ideas. The owner came to me after winning the award, said ‘Thanks for all that hard work,’ laughed, and walked away.”

That’s Rod Santos, owner and CEO of Stache Products LLC, in Rockville, MD, talking, relating how – as he tells it – one of his flagship products was ripped off by another manufacturer.

Sucks, right?

But Santos isn’t alone. Intellectual property (IP), trademarks, patents, copyrights and trade secrets, routinely get stolen, especially in the cannabis space, often leaving companies to do little more than whimper, “Liar, liar, pants on fire.”
Now, the good news: you can take steps to keep it from happening to you.

‘Drained Me So Bad’

Santos’s story, like so many others, reads like something out of Jerry Springer right before the inevitable slapfight and wig-pulling breakout.

“We have had our Stache Pen stolen from us,” Santos recalls. “It was my first product. It drained me so bad I had to drop the patent. Didn’t lose much, as I was just starting off. Only lost the blood and sweat I put into it, which I see is worth more than money today.”

Specifically, Santos and his partners had seen their connector patents stolen. “It was so fast. It killed the product, as the product was so cheap to make. We still sell it fine, but the potential the product had gotten was killed.”

Santos says he also had his RIO (Rig In One) patents stolen. “This is the one that hurt the most. I put all my money, time, and effort into this product. It was a huge success, (but) the fakes almost closed our door. We lost a $3-million-a-year contract with a three-year term, so overall, there was a minimum $9 million loss.”

There was additional salt in the wound, too. “Not to mention, for every one real product I sold, the fakes sold 10. So, I lost millions of dollars at the end of the day. We fought distributors that sold ours and the fakes. We won or settled those cases. We have closed done hundreds of Alibaba (e-commerce) accounts. It doesn’t stop.”

Those mainly responsible for it were the American distributors, Santos claims, “what I call ‘day traders.’ They aren’t in our industry; they will do anything and sell anything for a dollar. I personally don’t think they should be in cannabis.”

Santos is right when he says that most such cases are not resolved. “We own over ten cannabis utility patents and intend on getting more. I am an innovator and a creator – it will be hard to hold me back or stop me.”

Okay – Now What?

Like an old TV commercial warned, “Don’t let this happen to you!”

“There is a lot of intellectual property misappropriation in the cannabis space, but not all of it is intentional theft,” says Paul R. Coble, the Chair of Intellectual Property for Rose Law Group in Scottsdale, AZ, and the former Chair of the Cannabis Manufacturing Committee at the National Cannabis Industry Association.

“Early in the legal markets, there was a lot of trademark infringement where cannabis brands copied or parodied well-established non-cannabis brands,” Coble explains. “There is also a lot of ‘fluidity’ of trade secrets in the cannabis space, which would be considered theft if the trade secrets were properly protected. Instead, there is a lot of accusations of IP theft, but most of it will not progress beyond exchanging angry emails.”

“Laws are changing to afford owners of cannabis-related IP more routes for enforcing rights in their IP, so in that vein, things could be said to be getting better,” notes Jake Goldsmith, Esq., associate with half-century-old Heslin Rothenberg Farley & Mesiti (HRFM) in Albany, NY. “For example, some states, but not the federal government, now allow trademarks on cannabis-related names to be registered, and so owners of those trademarks can bring lawsuits to stop others from infringing on their brands where they could not do so in the past. We should continue to see upticks in how often these thefts/infringements result in litigation, assuming the legal landscape continues to trend towards legalization. This is good for owners of cannabis IP.”

The only way shop owners can be one hundred percent sure about their products, Goldsmith advises, is to contact the company that produces the legitimate product under their brand and inquire about the potential knockoffs. “They are generally in the best position to determine whether something is a knockoff or counterfeit.”

That aside, he adds, “It will come down to having a watchful eye and being able to determine when a situation is suspicious. For example, if prices are too good to be true, that is probably a sign to investigate.”

It would also be nice if the Beltway crowd in DC lent a helping hand. “The clearest answer would be federal legalization of cannabis and cannabis industry,” Goldsmith suggests. “At the very least, this would allow federal protection of cannabis-related trademarks, which would allow companies to far more easily protect their brands.”

Proactively Protect

“It is always best to proactively protect your IP,” Coble says. “This means trademark registrations and advice from a competent trademark attorney on how to properly implement, use, and police branding elements.

It also means taking a pragmatic approach to protecting trade secrets, not just sending out generic NDAs. “Cannabis companies that develop new or improved products or processes need to institute a program to capture and protect their knowhow and turn it into a protectable asset.”

But most of all, entrepreneurs should keep putting one foot in front of another and not let the bad guys make them quit.

“The anger I felt, and the pain I felt and still feel, I have turned into will, and to consistently perusing new ideas,” Santos concludes. “A lot has hurt us in the 11-plus years we have been doing this, but nothing will hold us back – ever.”