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



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. InGene Pool Technologies, Inc. v. Coastal Harvest, LLC,1a 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,” orex turpi causa.2In 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.”3Given that hemp is now fully legal under federal law, cannabis has been legalized in dozens of states,4and 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.5Other 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 cases and contexts. Other federal courts considering claims for bankruptcy protection or breach of contract have rejected the illegality doctrine as a defense.7As another example,in a case presenting claims for trade secret misappropriation and breach of contract, a federal court found it had jurisdiction to hear the claims because “plaintiffs are not seeking a remedy that would compel either party to violate the [CSA]” and “the dispute in this case does not involve the actual production or sale of cannabis.”8 The court further stated that even if a defendant was allegedly engaged in a business violative of one federal law, that would not “give it license to violate another.”

These varying outcomes create uncertainty for owners of issued patents covering legal cannabis inventions. Although patent infringement is a strict liability tort, and courts have generally been reluctant to apply the illegality doctrine in the context of tort claims,9no court had yet ruled on whether it would enforce issued patents against infringers. As discussed below, theGene Pool Technologiescase provides an initial answer to this question.

California federal judge rejects illegality doctrine in legal cannabis patent case

On November 22, 2022, Judge John W. Holcomb ruled on the defendant’s motion to dismiss based on the illegality doctrine in theGene Pool Technologies, Inc. v. Coastal Harvest, LLCpatent infringement case pending in the US District Court for the Central District of California.10  The plaintiff, Gene Pool Technologies, Inc., sued the defendant, Coastal Harvest, LLC, alleging infringement of several patents claiming methods for extracting oils and other compounds from plant material.11Coastal Harvest filed a motion to dismiss based on the illegality doctrine, arguing that the issues raised in Gene Pool’s complaint were nonjusticiable in federal court, because, they alleged, the matter involved cannabis-related commercial activity that would violate the CSA.12

This was a case of first impression for utility patent litigation. The argument had not been raised in previous cases, including high-profile cannabis utility patent suits.13In 2021, a federal court rejected a motion to dismiss a design patent infringement case based on the illegality doctrine, but no court prior to this case had addressed the issue in the context of a utility patent applicable to the legal cannabis industry.14

Judge Holcomb delivered his decision at an oral hearing, denying Coastal Harvest’s motion and clearing the case to proceed through discovery and trial. The district court decision provided an analysis of each of the party’s arguments and a review of its legal reasoning. The primary points raised in the decision are summarized below as guidance for future patent litigants.

No controlling authority

At the outset, the district court noted the lack of any controlling “authority addressing the application of the so-called illegality doctrine in the patent infringement context generally.”15The district court further highlighted the lack of any case law cited in the defendant’s motion that addressed the federal justiciability of cases “where the illegality arises from the defendant’s (as opposed to the plaintiff’s) alleged illegal conduct; that is, where a defendant seeks to use its own illegal conduct as a shield to allege tortious conduct.”16In this case, plaintiff Gene Pool was presented as an intellectual property holding company, without any alleged ties to cannabis production or sales, making Coast Harvest’s cannabis extractions the only activity that could be allegedly illegal.

Complaint did not necessarily invoke illegality doctrine based on guiding case law

Without any controlling precedent, the district court looked to other cases for guidance. Judge Holcomb placed emphasis on theSiva Enterprises v. Lance Ottcase discussed above, in which the court accepted jurisdiction to hear a trade secret misappropriation dispute because “plaintiffs were ‘not seeking a remedy that would compel either party to violate the [CSA],’ and the dispute did not involve ‘the actual production or sale of cannabis.’”17

In evaluating whether the dispute necessarily involved a violation of the CSA, the district court raised the following points:

  • Complaint allegations do not read on a violation of the CSA–The district court found that Gene Pool’s complaint did not necessarily seek damages based on an alleged violation of the CSA by Coastal Harvest. The complaint alleged improper extraction of products and solutesfrom cannabis, which the court noted could also encompass extractions of low-THC “hemp” varietals expressly excluded from the CSA ever since the 2018 amendments to the Farm Bill.18Thus, the district court held that the “complaint’s allegations concerning extraction of cannabis material are broad enough to include types of cannabis material excluded from the CSA.”19
  • Damages not based on lost profits of sales in violation of the CSA– The district court further distinguished its decision from the cited ruling inShulman v. Kaplan,noting that “Gene Pool does not seek damages based on its own cultivation or sales of marijuana,” but was instead merely the holder of allegedly infringed IP.20
  • Asserted patents and claims are not expressly limited to cannabis– The district court also noted that the asserted “patents do not mention cannabis or marijuana” but rather “relate more generally to extracting oils or compounds from plants” generally.21Thus, the sole connection to cannabis and any potential violations of the CSA were from the defendant’s use of the technology, and the claimsper se did not expressly involve cannabis.

Judge Holcomb also took notice of the federal government’s self-imposed prohibition on “prosecutions of private individuals or organizations that produce, distribute, or possess marijuana in accordance with state medical marijuana laws.”22The court reasoned that such prohibition on prosecution would likely apply to the cannabis extraction activities alleged in the complaint, and by extension to the government’s assessment of any alleged aiding and abetting that would arise from a court’s resolution of the patent infringement dispute.23In short, the district court held that the fact that “certain marijuana-related activity may be deemed [il]legal under federal law, does not in and of itself transform an unrelated federal cause of action with entirely different goals (for example, protecting employees orpromoting innovation) into facilitating a crime.”24

The decision is welcome news for holders of US cannabis patent rights, and although not necessarily binding on other courts, it provides a first guidepost through which parties can assess IP infringement and enforcement risks and strategies.

Overall, theGene Pool Technologiescase suggests that courts are open to accepting jurisdiction in cases where owners of patents on legal cannabis assert claims to enforce their patent rights, so long as there is a plausible basis for the court to find that the power of the federal government is not being used to further illegal activity. Innovators who are inventing new technologies in the legal cannabis market can maximize the likelihood that their patent rights will be enforceable by working with experienced patent counsel to draft claims in a manner that avoids reading exclusively on illegal cannabis-related activities, as well as strategically and selectively enforcing patent rights in a manner that allows federal courts to conclude that granting relief to the plaintiff will not make the court – and by extension, the federal government – an accessory to illegal activity.

Take-home lessons for the legal cannabis industry

Several lessons for the industry are apparent from the ruling in theGene Pool Technologiescase:

  • Patent owners considering future enforcement suits should consider placing their IP in non-plant touching entities that would not be subject to any allegations of illegality. Such strategies, however, should be carefully reviewed with IP counsel to guard against potential adverse impacts to available remedies and damages theories.
  • Courts may focus on whether a complaint clearly alleges that any money damages would necessarily flow from activity illegal under the CSA, implying that any complaint for patent infringement should be drafted so that infringement and damages are not necessarily limited to activity that violates the CSA.
  • Legal cannabis businesses seeking patent protection should obtain claims of varying breadth, as well as claims that cover practices that are clearly legal under both state and federal law.
  • Patent owners seeking to enforce their legal cannabis patents in federal court should seek to assert claims against infringing practices that are clearly legal under both state and federal law, and consider out-of-court strategies – such as licensing – to exercise their patent rights in other contexts.

  1. Gene Pool Technologies, Inc., v. Coastal Harvest, LLC, No. EDCV-21-01328-JVS (C.D. Cal. Nov. 22, 2022).
  2. Ex turpi causa non oritur actio(“From a dishonorable cause an action does not arise”).
  3. The Florida, 101 US 37, 43 (1879);see also, Ewell v. Daggs, 108 US 143, 149 (1883).
  4. See, e.g.,Cooley alert, “2018 Farm Bill Enacted With Important Provisions for Plant IP and Cannabis-Related Business,” January 10, 2019.
  5. See, e.g., Sensoria, LLC v. Kaweske, 581 F. Supp. 3d 1243 (D. Colo. 2022);see also, In re Medpoint Management, LLC, 528 B.R. 178 (Bankr. D. Ariz. 2015).
  6. See, e.g., S Shulman v. Kaplan, Civ. No. 2:19-cv-05413-AB(FFMx) (C.D. Cal. Oct. 29, 2010).
  7. See, e.g., Sensoria, LLC v. Kaweske, 548 F. Supp. 3d 1011, 1026 (D. Colo. 2021) (“The mere fact of marijuana’s involvement does not by itself automatically preclude … redress.”);Polk v. Gontmakher, Civ. No. 2:18-cv-01434-RAJ (W.D. Wash. Mar. 22, 2021) (“recent case law involving cannabis-related business contracts does not espouse an absolute bar to the enforcement of such contracts”);In re Burton, 610 B.R. 633, 637-38 (B.A.P. 9th Cir. 2020) (noting that “the mere presence of marijuana near a bankruptcy case does not automatically prohibit a debtor from bankruptcy relief.”)
  8. See Siva Enterprises et al. v. Lance Ott et al., Civ. No. 2:18-cv-06881-CAS(GJSx) (C.D. Cal. Nov. 5, 2018). A similar result was reached inGreenwood v. Green Leaf Lab LLC, Civ. No. 3:17-cv-00415-PK (D. Or. July 13, 2017).
  9. See, e.g., Mischalski v. Ford Motor Co.,935 F. Supp. 203, 206-07 (E.D.N.Y. 1996);Dream Games of Arizona, Inc. v. PC Onsite, 561 F.3d 983, 990-91 (9th Cir. 2009).
  10. See Gene Pool,supran.1.
  11. US patents 9,144,751; 9,145,532; 9,587,203; 9,604,155; and 9,757,664.
  12. See Gene Pool,No. EDCV-21-01328-JVS (Dkt. 1).
  13. See, e.g., United Cannabis Corp. v. Pure Hemp Collective, Inc., No. 1-18-cv-01922 (D. Colo.).
  14. See Lifted Limited, LLC v. Novelty, Inc., Civ. No. 16-cv-03135-PAB-GPG (D. Colo. Sept. 30, 2021).
  15. See Gene Poolat 12.
  16. Id.
  17. 13.
  18. 14.
  19. Id.
  20. 13.
  21. Id.
  22. 15.
  23. 15 –16.
  24. 17 (emphasis added).

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Driving Under the Influence of Marijuana




No national standard exists to determine how long someone should wait to drive after consuming marijuana. However, experts at the Colorado Department of Public Health and Environment recommend waiting at least six hours after smoking less than 35 milligrams of THC and eight hours after eating or drinking something containing less than 18 milligrams.

For reference, a “typical” marijuana cigarette contains at least 60 milligrams of THC, and most edibles contain around 10 milligrams per serving size. A 12-hour wait is safer, as the high (and subsequent drowsiness) from smoking a typical amount lasts far longer.

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How can it help distressed cannabis companies today?




Without the option to declare bankruptcy—due to federal illegality—the only recourse for cannabis businesses in distress to become solvent and / or distribute assets to creditors is to enter into an expensive and difficult judicial cannabis receivership. Receiverships are inherently adversarial, and the required input from third-party experts, lawyers and regular engagement with the courts can be incredibly costly.

Meanwhile, businesses operating in mainstream sectors have the ability to declare bankruptcy. This is also a court-ordered procedure that allows companies to satisfy lenders by liquidating assets, restructuring operations and finances, and to enjoy a break of sorts to make deals with creditors and renegotiate contracts and leases. Without a change to federal banking laws, cannabis companies are blocked from the benefits of bankruptcy, and the situation is only getting worse.

Given the current tight capital market environment, the increase in cannabis distressed assets, and the shortage of options to cannabis operators to address said challenges, is there a possible alternative option to alleviate the rather dire situation?


Genesis—Transition from Equity Financing to Debt Financing

Equity financing has been the most prominent way to raise capital in cannabis for the last several years. However,recent data collected by Viridian Capital Advisorsreveals that debt currently makes up 93% of capital raised by U.S. cannabis cultivation and retail companies, compared to 55.7% in U.S. industries overall.

This change in the capital-raising environment, which has led to an increased number of creditors in the sector, combined with continued market pressures on cannabis businesses to remain competitive, make it highly likely that the industry will inevitably see more receiverships.

Ultimately, while debt financiers are willing to lend cannabis businesses money, they expect to be paid back on time and often with high interest. If the business begins to struggle and enters a distressed phase that leads to receivership, the business assets will be sold off and the secured lenders will be the first to get paid, while the business itself is likely not to recover much.

Consider an Administrative and Collateral Agent

With receiverships punishingly expensive and the debt financing landscapebordering on predatorial, distressed cannabis businesses are desperate for any assistance or support available.  An Administrative and Collateral Agent (ACA) could be the alternative support required, benefitting borrowers, lenders and regulators alike, and offering a more cost-effective and less punitive option to courts, receivers and lawyers.

Instead of dealing with the courts and an expensive court-appointed receiver, cannabis companies seeking relief could turn to an ACA to facilitate mediation between parties and create alignment within the industry, which does not exist today.

An ACA could create a level of trust, transparency and complementary positioning with industry participants that simply has not yet existed in cannabis. The use of an ACA could challenge the competing perceptions that there is already alignment between regulators, operators and lenders, or that a useful alignment between these parties could ever exist.

An ACA could be a real and valuable tool for state governments and regulators as they begin to understand that it is in their best interests to assist cannabis businesses in their states in the face of continued federal illegality and restrictions. Under a private agreement between parties, the ACA would conduct something more akin to an administrative receivership as opposed to the traditional judicial receivership that is the only current option for insolvent cannabis businesses to seek relief.

Building upon a Cannabis Credit Rating Framework

Ideally, an ACA would work within an industry-specific credit rating system for cannabis businesses in distress in order to work within an established framework for potential investors. If cannabis companies are ranked across an equitable, systematic and formulaiccredit rating system, borrowers, lenders and regulators would benefit from the quantifiable transparency afforded by said rating, and debt financing would have an inherent regulatory-like structure to prevent predatory lending. By avoiding the courts, the distressed cannabis company would save time, money and create a more attractive scenario for potential lenders.

Initial Path to Mitigating Solutions

While the current challenges facing cannabis businesses today are well documented and have risen to both creditors and regulators attention, a viable solution has yet to be identified. Most likely no one solution exists beyond waiting for the economic and capital environments to evolve. Yet, mitigating options do exist.

The introduction of an ACA is one such option. Questions remain as to the mechanics, regulatory, operative and fiscal alike, as well as who to trust to take it on. The introduction of a credit rating framework is the first step to creating a solid foundation from within which an ACA can operate transparently and equitably. Any potential buy-in from regulators, creditors and operators remains an open question.

All of that said, there is today an unprecedented set of market forces that is pushing all cannabis stakeholders to think outside of the box. The still growing opportunities in the cannabis industry, the will of operators to survive and succeed, as well as the increasing exposure from creditors, all point to not only an acceptance for the need of an alternative, but to the drive to do things differently.

Is your cannabis business in distress? Would you benefit from expert guidance and support in deciding on whether to enter into a receivership?Reach out to United CMC today.

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United States: Alex Malyshev And Melinda Fellner Discuss The Intersection Of Tax And Cannabis In New Video Series – Part VI: Licensing (Video)




Carter Ledyard is pleased to announce the launch of our short-video series on the cannabis industry focusing on business and legal issues for those companies and entities interested in doing business in New York.

This series offers a perspective on tax policy and specific statutes affecting cannabis businesses today. Our cannabis shorts are a great way to get to know our professionals, Alex Malyshev and Melinda Fellner, in quick and easy to watch clips, packed with the salient information you need.

In Part VI of our series, Alex and Melinda discuss licensing for cannabis businesses in New York. Watch below!


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