Highly-Protected Secrets: Competitors Try to Keep Legal Secrets in the Quasi-Legal Marijuana Industry

How do you use the law to keep something unlawful a secret? This and related questions arise as more states legalize marijuana for medical use, recreational use, or both. As an illicit industry emerges from the shadows, competition and the substantial investments necessary to grow, package, and sell marijuana were bound to get rolled up in trade secrecy law at some point.

Twenty-three states plus the District of Columbia currently legalize at least one type of marijuana use, with Colorado, Washington and, most recently, Alaska and Oregon legalizing both medical and recreational use. In Washington, for example, growers and sellers are licensed by the State. Their wares are subject to testing and inspection before being sold at licensed retail locations.

Joint ownership has its risks. In a recent case in Washington state court, plaintiffs sued over the misappropriation of “products for the therapeutic application of cannabis to animals.” Putting aside the pot and pets, the lawsuit itself reads like many trade secrets actions: One set of business partners agreed to share their trade secrets with another set in exchange for half-ownership, there was a falling out, and now there’s a fight as to who owns the secrets. For now, plaintiff Canna Companion and defendant Canna-Pet apparently continue to sell cannabis health products for pets. Keeping your dog off the grass just became a lot harder.

Meanwhile, in Minnesota, the State and marijuana producers make strange bedfellows as companies apply to be the officially-sanctioned growers, processors, and sellers of medical marijuana under that State’s regulatory regime. In a recent presentation to the Minnesota Department of Health, one of two State-approved companies, LeafLine Labs, marked portions of its materials as “Trade Secret – Redacted.”

What’s so secret? Well according to LeafLine’s application, much of the proprietary information is quite standard, including the company’s “business plan.” But there are several more trade secrets unique to the industry, including, “our lighting protocol,” and  the “interrelationships between propagation areas, veg and flower areas, extraction areas, etc.,” for which “people contemplating entry to the medical cannabis business would pay, and in fact have paid, valuable consideration.” Under Minnesota law, as in many states, trade secret information, even when provided to the State, is exempt from public disclosure requests, putting the state in the unusual position of protecting information which it would have previously needed a criminal search warrant just to obtain in the first place.

In addition to garnering the protections afforded in trade secrets law, commercial marijuana businesses are also finding that coming out into the open can bring to bear the full regulatory weight of the state. To wit, the SEC recently charged stock promoters with puffing up pot stocks in a scheme to sell shares in companies in the marijuana industry. And both Washington and Colorado have worked to change their lawyer ethics rules to ensure that attorneys are not punished for providing legal advice to marijuana businesses which are still technically illegal under federal law—a  good thing for attorneys contemplating providing trade secrets counseling to their marijuana clients. These examples certainly won’t be the last time that the burgeoning legal marijuana industry intersects with the commercial protections normally afforded to traditional businesses.

 

This article was co-authored by Michael Weil and David Keenan and was originally published by Trade Secrets Watch. Mr. Weil is a San Francisco-based Employment Law partner at the law firm Orrick, Herrington & Sutcliffe LLP and Mr. Keenan is a Securities Litigation, Investigations and Enforcement associate based in Seattle.

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