Cannabis research firm Brightfield Group, recently raised its projections for the CBD (cannabidiol) industry, finding it could reach $22 billion in sector size by 2022. And if the forecasts are correct, it is obvious why market-leader businesses are keen to get a foothold in the sector. Attention-grabbing tabloid headlines around legalising medicinal cannabis have quickly been replaced by business-focused features reporting on a significant number of global FMCG brands, such as Coca-Cola® PepsiCo® and Constellation Brands, owner of Corona beer®, looking to invest in Canadian cannabis manufacturers of non-psychoactive cannabidiol, an element of cannabis that can help ease pain, inflammation and cramping.
In our first article in this series we discussed the importance of protecting the trade mark used for your products and the possible consequences of not acting from the outset. But what if you don’t want to go it alone? For some, a better option is to enter into a collaborative agreement. In the second part of our series looking into different aspects of IP protection for cannabis products, we now consider what happens to ownership of the IP when you work in partnership with another company.
Collaboration is a great way to share ideas and pool resources. Take The Coca-Cola Company as an example. The corporation knows the beverage market like no other. But it does not know the cannabis market. Collaborating by working with a company that already knows and understands an industry you may be looking to diversify into, will give it a head start in launching products on to the market, removing the need to invest the time and money into research. Metaphorically speaking for the beverage industry, The Coca Cola Company just needs to add water.
At the same time the cannabis company which The Coca Cola Company chooses to work with, has the opportunity to partner with the largest soft drink manufacturer in the world. No amount of investment, from a time or money perspective, would put the cannabis company on a level playing field in terms of status. And so working with the global giant is the next best option.
But what happens to the IP which comes from this collaboration? The parties could jointly own the IP as there is nothing to prevent the joint ownership; however, this can create issues in the long run. Unless there is a contrary agreement, consent from all parties is required for licensing and assignment of the IP in some jurisdictions, but not all. There may also be associated issues with who bears the responsibility for both providing instructions in respect of the maintenance of the IP and related costs. Therefore, it may be better to look to use a revenue sharing agreement, agreed separately to the legal ownership of the IP, which would avoid the need for joint ownership.
Another option is for the parties to establish a spin-out company, independent from the separate parent companies to own the IP. The cannabis market is fraught with controversy; if the collaboration did not work, or the multi-national wanted to distance itself from the product for whatever reason, a spin-out company would enable that degree of separation. The company could be quietly cut from the portfolio and the extraction process would not be too painful. At the same time, the spin-out company would benefit from the financial resources, wisdom and experience of the established companies and backing may add credibility. Any success of the spin-out could then be attributed back to the international brand of the parent company.
Of course, there may not be any IP to protect or rather any desire to protect the IP. It is well known that the formula for making Coca-Cola® is a trade secret. After developing its secret recipe in 1886, Coca-Cola® was presented with a dilemma of sorts. It needed to protect its recipe but a patent would only provide security for a short period of time, after which point, the recipe would be publicly disclosed and free for anyone to duplicate. Therefore a decision was made to protect the recipe by keeping it as a trade secret. As such, instead of protection for a limited period of time, the Coca Cola® recipe became, and remains a secret 132 years later.
Whether a company looking to move into the CBD market decides to keep the elements of the product a trade secret, own the brand themselves, enter into a collaborative agreement or establish a spin-out company with a partner, the right IP for the product or enterprise should be an early consideration. We can help you create an IP strategy that is right for your business.
Attention-grabbing tabloid headlines around legalising medicinal cannabis have quickly been replaced by business-focused features.