A California cannabis company can sue in Washington State for infringement of its trademark by a Washington marijuana producer, according to an October 29 opinion issued by Washington’s Court of Appeals, Division One. Headspace International had sued to protect its rights in its trademark THE CLEAR against a Washington marijuana business’s use of the same mark in connection with its own sales of cannabis products. The trial court had dismissed the suit, finding that Headspace had not alleged lawful use of its own mark in Washington commerce, and so had no trademark rights in Washington to enforce against the defendant Podworks. But the Appeals Court reversed and has allowed the suit to proceed.

Headspace based its claim of entitlement to trademark rights in Washington on the fact that it had licensed its mark THE CLEAR to another Washington company, X-Tracted Laboratories 502, which had used the mark in Washington according to the license. The lower court had held that this showing was insufficient to establish Headspace’s lawful use of its mark in Washington, since Headspace, as an out-of-state company, is not permitted to obtain a license to do business in Washington, and thus had not lawfully used its mark in Washington. But the Appellate Court held that the licensing of the mark to a Washington company was sufficient to establish lawful use of Headspace’s mark in Washington, because Headspace itself did not engage in any unlicensed production or distribution of cannabis in Washington, and nothing in Washington law precluded an out-of-state business from licensing its intellectual property to a Washington cannabis business. The fact that the use of its mark THE CLEAR by a licensee was an “indirect” use of the mark by Headspace did not preclude Headspace from acquiring enforceable trademark rights in Washington.

The Court also held that Headspace’s licensing of its mark for an ingredient to X-Tracted’s products did not make Headspace a “true party of interest” and thus an illegal producer under Washington law. Rather, the in direct use of its mark by a licensee was lawful business activity, entitling Headspace to enforceable rights in Washington.

With more and more states legalizing cannabis to one extent or another, and most of them restricting the sale of cannabis products to in-state businesses, the Washington Appellate Court’s reasoning on when an out-of-state business may assert rights and avail itself of the state’s legal system is instructive, and may invite legislative or regulatory reaction to avoid giving out-of-state marijuana businesses a foothold in the state.