Illegality Doctrine Rejected In Legal Cannabis Patent Case, Confirming Patent Enforceability

• Jurisdiction: United States,Federal,California
• Law Firm: Cooley LLP
• Subject Matter: Intellectual Property, Cannabis & Hemp, Patent
• Author: Mr Daniel Knauss, Orion Armon and Marcelo Pomeranz
• Published date: 15 February 2023

As the industry for cannabis that is legal under state and/or federal law continues to expand, a flurry of court cases in recent years have addressed whether these businesses can utilize the federal courts to vindicate their legal claims.

As discussed below, in some contexts, federal courts have dismissed plaintiffs' claims under the old common law "illegality doctrine," which holds that litigants engaged in unlawful practices may not access the court system to enforce their rights to proceeds of illegal acts. At the same time, the federal government has readily issued utility patents on legal cannabis inventions. The primary right accompanying an issued patent is the right to exclude others from practicing it - which generally requires the patent owner to sue in federal court. As a result, the enforceability of legal cannabis patents directly impacts their value.

Until recently, however, no federal court had addressed whether it would open its doors to legal cannabis businesses seeking to enforce their issued patents, injecting some uncertainty into the industry. In Gene Pool Technologies, Inc. v. Coastal Harvest, LLC ,¹ a California federal judge ruled that the legal cannabis patents asserted in the case were enforceable, rejecting a motion to dismiss based on the illegality doctrine.

The illegality doctrine in federal court

Dating back to at least the 18th century, English and American courts have declined to extend their jurisdiction to cases in which a claim arises from acts that are themselves a violation of law. This rule has been termed the "illegality doctrine," or ex turpi causa.² In the words of the US Supreme Court, "[n]o court will lend its aid to a party who founds his claim for redress upon an illegal act."³ Given that hemp is now fully legal under federal law, cannabis has been legalized in dozens of states,⁴ and with legal cannabis inventions clearly patentable (also under federal law), legal cannabis businesses have been left to question whether adversaries might raise the illegality doctrine in an effort to thwart legal claims.

Mixed results for legal cannabis litigants in non-patent federal court contexts

Operators of legal cannabis businesses have pursued a variety of claims in federal courts. In some cases, courts have declined to accept jurisdiction, while in others, the courts have held that merely alleging that a litigant was engaged in a business in conflict with the Controlled Substances Act (CSA) should not effectively immunize that litigant from claims that it violated other federal - or state - laws.

Results for legal cannabis businesses so far have been mixed. Federal courts have declined to provide jurisdiction to legal cannabis businesses in some contexts. Bankruptcy courts, for example, have declined to extend the protections of the bankruptcy code to debtors whose businesses clearly violated the CSA.⁵ Other types of claims, such as for violation of the Lanham Act and related Racketeer Influenced and Corrupt Organizations (RICO) Act claims, have similarly been dismissed when courts further determine that accepting jurisdiction would effectively perpetuate an activity that is clearly illegal under federal law.⁶

Legal cannabis businesses have fared better in other...