For over a 12 months my colleague Jihee Ahn, an skilled mental property litigator, has tracked the first-ever hashish patent infringement case United Cannabis Corporation v. Pure Hemp Collective Inc. (You can examine extraction, prior artwork, the Alice check, and declare development course of right here, right here, right here, right here). Recently she wrote concerning the anti-climactic finish to that litigation brought on by UCANN’s chapter submitting, which we first coated right here, and famous that the Colorado chapter courtroom had issued an order to indicate trigger why UCANN’s chapter 11 submitting shouldn’t be dismissed due to UCANN’s ties to the marijuana trade. (Chapter 11 is usually used to reorganize a enterprise).
The courtroom has but to rule on whether or not UCANN’s submitting needs to be dismissed, however a current submitting by the United States Trustee for Region 19 (the “Trustee”) provides additional purpose to consider the case might be dismissed.
By manner of background, the United States Trustee Program is a element of the Department of Justice and is liable for overseeing the administration of chapter circumstances and personal trustees underneath 28 U.S.C. § 586 and 11 U.S.C. § 101, et seq. The Program divides the nation into quite a lot of totally different areas—Colorado being in Region 19. The trustee in a Chapter 11 performs a major function by monitoring the debtor, functions for compensation and reimbursement, and conducts the assembly of the collectors on the Section 341 assembly, the place the trustee could query the debtor underneath oath. The trustee additionally imposes sure necessities on the debtor in phrases of reporting earnings and working bills, establishing new financial institution accounts and paying staff. So the views of the trustee are vital, if not dispositive in many cases.
On June 5, the Trustee filed an objection to UCANN’s movement to reject a patent license settlement. The patent license settlement involved the identical patent at problem in the case towards Pure Hemp (the 911 Patent) and I gained’t get right into a technical dialogue of the license settlement and UCANN’s movement. What is apparent from the Trustee’s objection is that the Trustee strongly believes that the UCANN chapter have to be dismissed due to UCANN’s involvement in the marijuana trade. (Email me in the event you’d like a duplicate of the trustee’s submitting.)
The Trustee states that though UCANN’s submitting in response to the courtroom’s show-cause order denies any involvement with (federally) unlawful marijuana, the Trustee’s response to that submitting identifies “plain representations concerning marijuana-related assets or activities made in publicly available filings with the U.S. Securities and Exchange Commission . . and on [UCANN’s] website.” The Trustee states that the 911 Patent itself considerations THC by reference to “other cannabinoids,” and that UCANN has sought to obscure that truth in its chapter filings. The Trustee goes on to cite language on UCANN’s web site and in its safety filings and language from the 911 Patent itself that seems to incorporate THC formulations of hashish. (The Trustee makes no argument relating to the .3% permissible ranges of “total thc” underneath the 2018 Farm Bill.)
The Trustee argues that’s “clear” that the licensees are licensed to make use of the 911 Patent and that the 911 Patent pertains in half to THC. The Trustee asks the Court to compel UCANN to elucidate whether or not the license agreements ponder using the 911 Patent to fabricate, promote, or distribute productions containing THC. If so, says the Trustee, UCANN is “asking this Court to entangle itself in readjusting the debts of those who seem to have conspired to violate the [Controlled Substances Act]”. Obligations “incurred to further criminal conduct,” says the Trustee, “cannot be a valid purpose of a bankruptcy.”
In conclusion, the percentages of UCANN persevering with with its Chapter 11 reorganization appear to be diminishing. Although companies strictly concerned in hemp mustn’t expertise the problems in the UCANN case, any enterprise group that’s concerned in each state-legal marijuana and hemp ought to examine find out how to forestall the state-legal-marijuana enterprise from precluding chapter for the federally authorized hemp enterprise. Even hemp companies that promote merchandise right into a marijuana market could doubtlessly be considered as partaking in illegal federal exercise. Whether and the way hemp could also be separated from marijuana for chapter objective is new territory. Stay tuned.