What is a Trademark?
Before we get into the nitty gritty details of the Wrigley case, let's do a quick refresher on what a trademark is and why they are economically important. A trademark is a phrase, symbol, insignia, word, or specific attribute of a product that differentiates itself from others available in the market. A trademark signals to prospective consumers that a certain company owns a specific product.
For instance, a logo of a white apple or a red M makes an immediate impression on the consumer that the companies Apple or McDonalds own the product or service being offered. Trademark owners will usually register their trademark to prevent bad actors from unfairly using their trademark and appropriating associating goodwill it signals to consumers to drive up sales.
Facts of the Case
Wrigley, the plaintiff, is a world renown candy and gum company that sells the SKITTLES brand of candy, uses the slogan TASTE THE RAINBOW, and advertises with a distinctive S logo.
Terphogz, the defendant, is a cannabis company that sells cannabis, drug paraphernalia, and promotional merchandise. Terphogz sold their products under the marks:
- TAZTETHEZTRAINBRO, and
- A Z logo that strongly resembled the style of Skittles' S logo.
Terphogz distributed their ZKITTLEZ goods to third parties in Illinois who would advertise and sell to end users in Illinois, where Wrigley is located.
Wrigley sued Terphogz alleging several causes of action for its trademark infringement.
Legal Issues of Case
The main claims Wrigley brought were based on trademark infringement and false designation of origin.
Wrigley is alleging that the Terphogz's use of the marks ZKITTLEZ, TAZTETHEZTRAINBRO, and a Z logo is likely to confuse consumers as to whether Skittles is somehow connected with the purchased cannabis products, and thus, the confusion Terphogz creates infringes their mark.
Specifically, Wrigley's false designation of origin claim is alleging that Terphogz's misleading marks creates the false impression that these cannabis goods are coming from Wrigley. Wrigley's claim indicate that they believe that cannabis consumers might be more inclined to buy certain products if they thought it was associated with a classic candy.
Dilution by Tarnishment
The other key claim Wrigley alleges is dilution by tarnishment. Dilution is a separate action from trademark infringement that protects famous marks from misuses that will tarnish the brand's reputation.
For instance, Coca-Cola sued Gemini Rising, a poster company, for selling a poster saying ‘Enjoy Cocaine' in Coca-Cola's distinctive stylized font and its iconic red and white color scheme. In this case, Wrigley is arguing that the fact Terphogz is using its brand to sell marijuana and other associated merchandise tarnishes the brand's reputation by associating it with drug activity.
Finally, Wrigley is asserting a cybersquatting claim over Terphogz operating a website with the domain name zkittlez.com where it advertised and sold its products. Cybersquatting is a relatively new cause of action, created in response to bad actors buying up domain names of well-known companies and holding them for ransom. Cybersquatting can also be a valid cause of action when a domain name is used with the intent of profiting off another trademark, which was the angle Wrigley is taking in this case.
An Illinois district court denied Terphogz's attempt to dismiss the case on jurisdictional grounds back in November, 2021. The court did not reach Wrigley's claims of trademark infringement, the case only determined whether the Illinois court had the authority to hear the case. As of now, the case is still on the court docket and a trial is certainly looming that will determine whether Trephogz's actions have infringed or diluted Wrigley's Skittles trademarks.
Impact on Cannabis Industry Moving Forward
In recent years, companies such as Hershey Company, Mondelez International, and Ferrara Candy Company have filed trademark lawsuits against cannabis companies that allegedly sell look-alike cannabis products. These lawsuits have all been settled, with the cannabis companies agreeing to stop production and sale of the disputed products.
In an amended lawsuit filed the following month, Wrigley asked the court to find Terphogz acted willfully, seeking treble damages. This would be the first suit where a court would award damages for infringement, and if Wrigley could obtain treble damages, it could open the floodgates for other brands to sue cannabis producers using their trademarks to advertise and sell their products.
For instance, trademark owners could put a stop to the common practice of selling strains of cannabis named after well-known brands, such as Fruity Peebles, Gorilla Glue, and Skywalker OG. Companies selling edibles named after famous snacks, such as Stoney Patch Kids, Keef Kat, and Reefer's Peanut Butter Cups, could be at risk of infringement suits too.
Given the lucrative nature of the ever-growing legalized cannabis industry, brand owners could decide they are no longer comfortable with cannabis businesses freely using their brand names to boost sales. A judgment in Wrigley's favor would give brand owners the legal backing they need to make litigation threats very convincing to cannabis business owners that cannot afford to suffer such liability.
Why TM Protection is Crucial in Cannabis Industry
Trademark rights are based on use in the United States. However, federal registration creates a presumption that a brand owner has the exclusive right to use a trademark nationwide. Trademark common law rights based on use are hard to prove and are territorially limited.
If a brand owner can show it has rights to a mark in Colorado, it will not be able to stop companies from using their mark in other states. Without adequate trademark protection, competing businesses will be free to use trademarks that a brand owner has invested considerable time and expense in developing. Moreover, if a brand owner cannot show it has rights in a mark, then it cannot obtain injunctions against infringers or be awarded damages from infringements.
How to protect your TM
Currently, federal trademark protection is not available for any cannabis-derived product having a THC concentration greater than 0.3% after the passage of the 2018 Farm Bill. Moreover, cannabis-related marks used on food/beverages, dietary supplements, and pet treat products is not available either under the Federal Food, Drug, and Cosmetics Act.
While most routes for federal protection are closed off, there are still several ways a cannabis business can protect their trademarks.
Filing for Trademark Protection for Ancillary Goods and Services
First, they can obtain federal protection for ancillary goods and services that do not contain the federally prohibited THC concentration. However, the USPTO frequently requires companies to execute declarations that ancillary products, such as rolling papers and glassware, will not be used to market marijuana, which might be challenging for some companies to prove.
Intent To Use Application
Second, if a company still has its eyes set on federal trademark registration, it can implement a savvy registration strategy that banks on federal law changing in the near future. This strategy would involve the cannabis company filing an intent to use application under Section 1(b).
Filing under this basis gives the trademark applicant six months (extendable to three years) to file a statement of use, which takes the trademark application into a full-blown federally registered trademark if it passes other registration requirements. A savvy cannabis business could file and hope that federal law changes in the next three years or refile before a final office action is due for the mark.
Obtain State Trademark Protection
Third, cannabis business owners can obtain state trademarks where marijuana has been legalized, in states like Washington, Colorado, and Illinois. However, there are some drawbacks to this approach, mainly that most states do not confer registered marks statewide priority to enjoin other marks.
Therefore, cannabis business owners will not be able to stop infringers that are outside the owner's geographic are of use. Also, not all states permit intent to use applications nor do they allow for marks to become incontestable after five years, unlike federal trademarks.
IP Protection Through Contracts
Fourth, cannabis business owners should assess how their contracts entered into with third parties can protect their intellectual property. Clauses could be inserted in contracts with third party marketers, distributors, and sellers that explicitly details the cannabis company's ownership in the intellectual property associated with the deal. Severability and favorable forum selection clauses can also be added to mitigate risks that the third party might claim the trademarks are illegal as a defense to any action.
How working with Newburn Law to protect your TM can help your business
Newburn Law will work with your cannabis business to custom tailor a plan to properly protect your trademarks based on your goals, extent of operations, and products/services. With our vast experience in the cannabis industry, Newburn Law will advise your business how to minimize potential liabilities and maximize protection against infrigers.
Contact us today for a free consultation!