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Copyright Office Guidance Regarding Artificial Intelligence

Author: Sean Clancy*, Shareholder

Understanding copyright law in the age of artificial intelligence can be complex and confusing.  And it will continue to be complex and confusing.  But on March 16, 2023, the United States Copyright Office (the “Office”) published some guidance regarding its plans to handle copyright registration for works containing AI-generated materials.  The Office also intends to seek public input this year on additional topics, including how the law should apply to the use of copyrighted works in AI training.

The Office has identified three main questions to consider: (1) Is the output protectable under copyright? (2) Are generative works with human authorship elements eligible for registration? (3) What information should be disclosed to the Office when registering?

It is well-established that copyright can protect only material that is the product of human creativity. Most fundamentally, the term “author,” which is used in both the Constitution and the Copyright Act, excludes non-humans.

While the Office will examine works with AI-generated materials on a case-by-case basis, they have emphasized that the traditional human authorship requirement still stands. If a work’s authorship elements were produced entirely by a machine, without any human creative input, then the Office will not register it. However, if a human had creative control over the work’s expression and actually formed the traditional elements for an original work of creative authorship, then the work may be eligible for registration.

In the case of works containing AI-generated material, the Office will consider whether the AI contributions are the result of “mechanical reproduction” or if the human author gave visible form to their “own original mental conception.” In other words,  the extent of human creative control over the work’s expression will be a determining factor.  The Office provides this example:

[W]hen an AI technology receives solely a prompt from a human and produces complex written, visual, or musical works in response, the “traditional elements of authorship” are determined and executed by the technology—not the human user. Based on the Office’s understanding of the generative AI technologies currently available, users do not exercise ultimate creative control over how such systems interpret prompts and generate material. Instead, these prompts function more like instructions to a commissioned artist—they identify what the prompter wishes to have depicted, but the machine determines how those instructions are implemented in its output. […] When an AI technology determines the expressive elements of its output, the generated material is not the product of human authorship. As a result, that material is not protected by copyright and must be disclaimed in a registration application.

The Office also stresses that applicants have a duty to disclose any AI-generated content contained within their work. They advise applicants to use the “Limitation of Claim” section to exclude AI-generated content that is significant, more than “de minimis.” If an applicant is unsure, they can disclose as a general statement and the Office will contact them for more information.

Notably, previously registered works with AI-generated content must be updated. If a registration is found to contain AI-generated materials that were not previously disclosed, it may be cancelled.

Emerge Law Group’s intellectual property attorneys continue to monitor new factual and legal developments involving AI and copyright, including future guidance from the Office about this powerful new technology.

*The author generated this text in part with Chat-GPT, OpenAI’s large-scale language-generation model. Upon generating draft language, the author reviewed, edited, and revised the language to conform to his own preferences and style and takes ultimate responsibility for the content of this publication.
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DEA Takes a Rare Step Forward for Telehealth

Author: Matt Brockmeier, Emerge Of Counsel Attorney

The Ryan Haight Online Pharmacy Consumer Protection Act of 2008 (the Act) amended the Controlled Substances Act (CSA) to help prevent the illegal distribution of controlled substances on the internet. The Act required an in-person medical evaluation before prescribing or otherwise dispensing controlled substances online. It also established seven exceptions to that requirement, allowing practitioners to prescribe medications for a patient without first evaluating that patient in person. One exception allowed DEA to waive the in-person requirement during the COVID Public Health Emergency (PHE). During the pandemic several companies began providing large volumes of controlled substances via telehealth under that exception, including ketamine and Adderall. However, the exception it is set to expire on May 11, 2023, threatening the future of the nascent telehealth prescription industry.

Falling within the Act’s definition of the ‘‘practice of telemedicine’’ is ‘‘a practitioner who has obtained from the [DEA Administrator] a special registration under [21 U.S.C. 831(h)].’’ 21 U.S.C. 802(54)(E) contemplates that the DEA must issue regulations to effectuate this special registration provision. In 2017, under President Trump, DEA was statutorily instructed to finalize a rule on the registration’s application process and procedures. Disappointingly, as of this writing, DEA has yet to promulgate “special registration” rules, despite pleas from patients, clinicians, and the medical and business communities.

Analysts familiar with DEA’s intransigence and stall tactics predicted that the expiration of the PHE declaration would devastate the ketamine telehealth industry. In a surprise to most, including this author, on March 1 DEA issued a notice of rulemaking that would authorize telemedicine where 1) the prescribing practitioner has not conducted an in-person medical evaluation with the patient; 2) the prescription was issued pursuant to a telemedicine encounter and 3) the telemedicine encounter results in a prescription for controlled medications. There are some limitations, including that prescribing practitioners could only issue telehealth prescriptions for up to a 30-day supply, and there are labeling and recordkeeping requirements. Nonetheless, this is an encouraging development from an agency with a reputation for being dilatory and obstructionist, especially when it comes to making regulated medicines available to patients in need.

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PsychedeLinks – March 3, 2023

PsychedeLinks is a curated selection of top news stories impacting business, research, and culture in the psychedelics ecosystem, crafted by Emerge Law Group’s groundbreaking Psychedelics Group.

 Emerge’s Hot Take

DEA Proposes New Telemedicine Regulations
The Ryan Haight Online Pharmacy Consumer Protection Act of 2008 (the Act) amended the Controlled Substances Act (CSA) in an attempt to prevent the illegal distribution of controlled substances on the internet. Among other things, the Act required an in-person medical evaluation as a prerequisite to prescribing or otherwise dispensing controlled substances online. One exception allowed DEA to waive the in-person requirement during the COVID Public Health Emergency (PHE). During the pandemic a number of companies began providing a not insignificant volume of controlled substances via telehealth, namely ketamine and Adderall, subject to this exception. However, that exception is set to expire on May 11, 2023, thrusting a nascent industry into uncertainty over the past few months. Analysts familiar with DEA’s intransigence and stall tactics predicted that the ketamine telehealth industry would be devastated by the expiration of the PHE declaration. In a surprise to most, on March 1, 2023, DEA issued a notice of rulemaking that would authorize telemedicine where 1) the prescribing practitioner has not conducted an in-person medical evaluation with the patient; 2) the prescription was issued pursuant to a telemedicine encounter and 3) the telemedicine encounter results in a prescription for controlled medications. There are some limitations, including that prescribing practitioners will only be able to issue telehealth prescriptions for up to a 30-day supply of a controlled substance, and there are labeling and recordkeeping requirements. Some telehealth providers and advocates have concerns about some of the limitations in the DEA’s proposed rules, but for ketamine in general, “this is an encouraging development from an agency that has earned a reputation for being dilatory and obstructionist at times”, says Emerge Of Counsel attorney, Matt Brockmeier.

 Other Noteworthy News

Bill Seeks Personal Data Collection On People Who Use Legal Psilocybin in Oregon
“State Sen. Elizabeth Steiner, D-Portland, wants the state to monitor whether Oregon’s landmark law allowing the controlled use of psilocybin is working as intended — and not just for ‘rich white people.’ The Oregon Senate Health Committee on Monday heard her bill, Senate Bill 303, which would require psilocybin service centers to collect data on the health, education, race, income and other sensitive information of adults that use the hallucinogenic drug under their supervision. Steiner’s bill is in response to concerns that Oregon’s psilocybin program will only be accessible to those who can afford what could be hefty price tags service centers charge. It’s also meant to answer questions about the effectiveness of the first-of-its-kind program, which was pitched to voters as a means to address mental health and included a requirement that a report be issued on safety and efficacy after the first two years. Opponents of the bill argue it will mean another administrative burden that will further drive up the cost of psilocybin sessions. They also say its data collection requirement will have a chilling effect on people who may already be wary of using the federally illegal drug for its purported benefits.”
New Mexico Lawmakers Approve Psilocybin Study Bill
“New Mexico lawmakers advanced legislation on Wednesday to create a state body that would study the possibility of launching a psilocybin therapy program for patients with certain mental health conditions who could benefit from using the psychedelic. The House Health and Human Services approved the bill, sponsored by Rep. Christine Trujillo (D), in a unanimous voice vote. The measure now heads to the House Appropriations & Finance Committee. The legislation would establish an eight-member Psilocybin Advisory Group appointed by the governor that would be responsible for studying and making recommendations on the ‘feasibility’ of creating a psilocybin therapy program. Members would specifically need to consider policies to create a regulatory framework for psilocybin cultivation, manufacturing and dispensing, as well as ‘treatment guidelines for the use of psilocybin-derived products to treat certain mental health issues, including patient selection and provider training and certification.’”
More and More Psychedelic Reform Bills in the Pipeline Throughout United States
“2023 has already shown extensive advances in the realm of psychedelic policy reform. About a dozen states in the US have put forward legislation that would see multiple psychedelic substances from ketamine, MDMA, psilocybin, and more receive downgraded criminalization designations. In addition, lawmakers are as open as ever to the idea of psychedelics’ therapeutic potential. Special task forces or state-sponsored research bodies have been created or are set to be voted on which would seek to properly educate voters and state governing bodies on the possibilities associated with psychedelic therapy. With direct support from the Governor’s office, two new psychedelic research bills have been unanimously approved by Hawaii’s Senate Ways & Means Committee. While not exactly psychedelic policy, an important bill is brewing in Colorado’s state legislature. It would allow cities throughout the state to institute “overdose prevention centers”, similar to those seen in Europe, where citizens could use drugs regardless of their legality in a medically supervised environment.”
Untangling Anorexia: Psychedelics Offer Hope for a Neglected Condition
“Characterised by self-starvation, anorexia nervosa is a psychiatric disorder that mainly affects adolescent women, who become invested in restricting their food intake. A fear of weight gain can morph into a general fear of loss of control. In the past, clinicians have looked to pharmaceuticals for help, but several antidepressants, antipsychotics and nutritional or hormonal supplements have failed in clinical trials[4]. As a result, no medicine has been licensed. Another approach attempts to reset the outlook of a person with anorexia nervosa with psychedelics. Several clinical trials of psilocybin — the active ingredient in magic mushrooms — are underway. ‘If you experience that you can still have life, that you can still have hope, this helps to motivate the patient for further therapy,’ says Hubertus Himmerich, a clinician and researcher at King’s College London, who is leading a trial of psilocybin for anorexia, using ‘COMP360’ tablets of synthesized psilocybin manufactured by COMPASS Pathways. Two other trials of psilocybin therapy for anorexia nervosa are also ongoing.”

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PsychedeLinks by Emerge Law Group
PsychedeLinks is a curated selection of top news stories impacting business, research, and culture in the psychedelics ecosystem, crafted by Emerge Law Group’s groundbreaking Psychedelics Group.
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Critical Terms for Intellectual Property License Agreements (Part 2)

Author: Sean Clancy

An audit provision is a clause in an intellectual property license agreement that provides the right for the licensee (the party receiving the license) or the licensor (the party granting the license) to inspect the records of the other party to verify compliance with the terms of the agreement. This provision is included in intellectual property license agreements to ensure that both parties are complying with the terms of the agreement.

One common reason for an audit is to ensure that the licensee is paying the correct royalty fee. The license agreement will typically specify the amount of royalties that the licensee must pay for the use of the intellectual property. An audit provision gives the licensor the right to inspect the licensee’s records to ensure that the correct royalty fees are being paid. This helps to prevent the licensee from underreporting the amount of royalties owed, which would be a breach of the agreement.

Another reason for an audit is to ensure that the licensee is using the intellectual property in accordance with the terms of the license agreement. For example, if the license agreement restricts the use of the intellectual property to a certain geographic area or market segment, an audit provision can help to ensure that the licensee is not using the intellectual property outside that area. This helps to prevent unauthorized use of the intellectual property.

In addition to protecting the interests of both parties, an audit provision can also help to avoid disputes that may arise under the license agreement. For example, if the licensee disputes the amount of royalties owed, an audit provides a legal right for licensee to review royalty reporting without resorting to a lawsuit. Similarly, if the licensor believes that the licensee is using the intellectual property outside the terms of the agreement, an audit can provide evidence about whether or not a violation is occurring.

It is also important to consider limitations on the use of the audit provision. For example, the audit provision may specify that audits can only be conducted during business hours and with reasonable advance notice. Additionally, the frequency of audits may be limited to prevent excessive intrusion into the licensee’s business.

An audit provision is another critical component of an intellectual property license agreement. It provides a means for verifying compliance with the terms of the agreement, resolving disputes, and preventing unauthorized use of the intellectual property. The inclusion of an audit provision in an intellectual property license agreement helps to protect the interests of both parties and ensures that the license agreement is properly enforced.

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Beneficial Owners – New Reporting Rules

Authors:
Kaci Hohmann and Delia Rojas, Attorneys at Emerge Law Group

On September 30, 2022, the federal Financial Crimes Enforcement Network (“FinCEN”) published final regulations governing beneficial ownership reporting requirements under the Corporate Transparency Act (the “Final Rule”). The Final Rule substantially mirrors the draft rules covered in our earlier blog on the topic. The Final Rule becomes effective January 1, 2024. See our summary and tips below to prepare for the upcoming reporting requirements.

Who must report?

The Final Rule requires a “reporting company” to report certain information to FinCEN regarding its beneficial owners and company applicants. A “reporting company” is any domestic or foreign entity created or registered to do business in a U.S. state or Indian tribal jurisdiction (“Reporting Company”). This definition would seemingly capture nearly all US businesses, although there are 23 categories of exemptions set forth in the Final Rule, including (i) certain inactive entities, (ii) insurance companies, (iii) financial institutions, and (iv) large operating companies employing more than 20 full-time employees, having an operating presence in the U.S., and having gross receipts for sales in the U.S. exceeding $5,000,000.

Who is reported?

Each Reporting Company must report information concerning its “beneficial owners,” which includes any individual who, directly or indirectly, exercises “substantial control” over or owns or controls 25% or more of the “ownership interests” of the Reporting Company (“Beneficial Owners”).

An individual has “substantial control” over a Reporting Company if they serve as a senior officer, have authority over the appointment or removal of any senior officer or a majority of the directors (or similar body), or directs, determines, or substantially influences important Reporting Company decisions.  FinCEN indicated that it designed the “substantial control” element to capture the key individuals of the Reporting Company who direct its actions and to “focus the applicability [of the Final Rule] on the senior officer element of the definition of substantial control”.

In the Final Rule, the definition of “ownership interest’’ more broadly focuses on types of arrangements that directly or indirectly convey ownership interests, such as equity, convertible instruments, and put options. Additionally, the definition of “ownership interest” now includes a catch-all provision for “any other instrument, contract, arrangement, understanding, relationship, or other mechanism used to establish ownership.” Importantly, any option or similar interest of the Reporting Company is treated as exercised in determining “ownership interest.”

In response to extensive public comments on the topic of a “company applicant”, the Final Rule requires Reporting Companies created or registered on or after January 1, 2024, to report information related to a “company applicant.” A company applicant is the individual(s) primarily responsible for directly filing the document that creates or registers a Reporting Company, such as a law firm (“Company Applicant”).  Entities created or registered before January 1, 2024, are not required to report information with respect to any “company applicant.”

What information must reports include?

The initial report for the Reporting Company must include the legal name, any trade name or d/b/a name, principal place of business address in the U.S., state of formation or registration, and its IRS employee identification number. The Reporting Company must also provide the full name, date of birth, current address, the number and issuing jurisdiction of a passport, identification card, or driver’s license, and a photo of the identification document used for each Beneficial Owner and Company Applicant.

When must reports be filed?

Reporting Companies in existence prior to January 1, 2024 must file its initial report before January 1, 2025. Reporting Companies created or registered on or after January 1, 2024 must file its initial report within 30 calendar days of receiving actual notice that it was created or registered to do business with a secretary of state or similar office. If a Reporting Company’s exemption status changes, a report must be filed within 30 calendar days of the change in exemption status. Lastly, if there are any changes to the information filed in the initial report, an updated report must be submitted within 30 calendar days of the change.

What proactive compliance steps should businesses take?

The Final Rule imposes considerable new federal compliance requirements on businesses. Although some entities will be exempted, many will not. Every business should investigate whether it is a Reporting Company or qualifies for an exemption. A Reporting Company’s failure to comply with the reporting requirements could result in significant penalties and possible imprisonment.

Businesses with reporting obligations should create and implement internal policies and procedures to ensure that all reporting is timely and properly made. It’s not too early to begin collecting the information your business may need to report. Additionally, businesses and business attorneys should consider adding provisions to certain agreements requiring the applicable people to cooperation with required information collection and reporting, and update confidentiality clauses to carve out exceptions for reporting requirements.

If you have any questions or concerns about how the beneficial reporting requirements may impact your business, contact an attorney from our Business Group.

See the final rule here.

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Residency Requirements Under Attack – Analysis of the First Circuit’s Opinion on the Dormant Commerce Clause’s Effect on Cannabis Residency Requirements

Author:
Blake Marvis, Attorney at Emerge Law Group; Oregon Litigation Practice Group

In August, the First Circuit Court of Appeals became the first federal appeals court to address an issue that had been litigated in district courts since 2020.  The question was relatively straightforward – does the dormant commerce clause (“DCC”) prohibit state residency requirements for owners of state-licensed cannabis businesses?

Many states that have legalized cannabis instituted various types of residency requirements for owning or operating a cannabis business within their borders.  The Supreme Court’s decision in Tennessee Wine and Spirits Retailers Association v. Thomas, 139 S.Ct. 2449 (2019) also breathed some new life into the DCC. Multiple cannabis-related cases leveraged that decision to make stronger DCC arguments.

Numerous district court cases that addressed this issue concluded that various residency requirements violated the DCC.  See NPG, LLC v. City of Portland, Maine, 2020 WL 474913, at *10-11 (D. Maine, Aug. 14, 2020) (determining that the DCC “likely restricts the City’s licensing of marijuana retail stores”); Toigo v. Dep’t of Health and Senior Servs., 549 F. Supp. 3d 985, 995-996 (W.D. Miss. 2021) (granting preliminary injunction and determining that Missouri’s “residency requirement is likely unconstitutional under the dormant commerce clause.”); Lowe v. City of Detroit, 544 F. Supp. 3d 804, 815-816 (E.D. Mich. 2021) (granting preliminary injunction against residency requirement based on violation of the DCC).  However, one district court determined that because cannabis is illegal under federal law, the DCC offered no protection or mechanism for striking down residency requirements related to cannabis.  See Original Investments, LLC v. State, 542 F. Supp. 3d 1230, 1234-1237 (W.D. Ok. 2021).

The First Circuit sided with the majority of district court decisions and held that Maine’s residency requirement for officers and directors of medical cannabis dispensaries violated the DCC.  See Northeast Patients Group v. United Cannabis Patients and Caregivers of Maine, 45 F.4th 542, 558 (1st Cir. 2022).  The First Circuit addressed defendant’s three main arguments in making its holding.

First, the Court addressed the argument that because cannabis is illegal under federal law, there is no “interstate” market for cannabis.  Therefore, the DCC does not apply because Maine was not discriminating against any “interstate” market.  Id. at 547.  The Court rejected this argument, stating that Gonzales v. Raich had established there was an interstate market for cannabis that Congress could regulate, even though that market was illegal.  Id.  The Court also looked to the fact that Congress had passed the Rohrabacher-Farr Amendment, and identical versions every annual congressional appropriation since, which the Court considered a tacit acknowledgement of the interstate cannabis market.  Id. at 547-48.

Second, the Court addressed the argument that because cannabis is federally illegal under the Controlled Substances Act (“CSA”), the DCC offered no protection to such illegal commerce.  Id. at 548.  The Court rejected this argument as well, indicating that the precise question before it was not “whether the CSA preempts the residency requirement,” but rather whether “the residency requirement cannot stand because it transgresses the [DCC] due to the substantial burden that this requirement . . . imposes on interstate commerce.”  Id.  The Court also focused again on how Congress had passed legislation related to state-legal cannabis regimes – including the Rohrabacher-Farr Amendment – since the enactment of the CSA, which reflects that “Congress contemplates both that an interstate market in medical marijuana may exist that is free from federal criminal enforcement and that, if so, this interstate market may be subject to state regulation.”  Id. at 549-550.

Third, the Court addressed the final argument from defendants, which asserted that the CSA evidenced Congress’s intent to “consent to otherwise impermissible state regulation.”  Id. at 550.  After extensive discussion about which legal standard to apply (i.e., whether Congress needed to make a “clear statement” or not on the issue), the Court ultimately determined that Congress did not need to make a clear statement that residency requirements were permissible, CSA notwithstanding.  Id. at 553.

Zooming out, the real thrust of the First Circuit’s decision narrowed in on how the situation of state-legal cannabis is unique. The Court avoided a finding that the DCC did not apply without a clearer statement from Congress on the issue.  In other words, the Congressional intent that could be gathered from the CSA, the Rohrabacher-Farr Amendment, and other cannabis related legislation was mixed and the Court would not interpret this mixed intent as barring application of the DCC.

It is important to note that the First Circuit’s decision was not unanimous and Judge Gelpi dissented from the holding.  Id. at 558.  The dissent focused on the argument that the CSA rendered cannabis illegal, which subsequently bars application of the DCC.  Id. at 558-559.  In other words, the dissent determined that the “fundamental objective” of the DCC was “inapplicable, because Congress has already outlawed the national market for marijuana.”  Id. at 559.  Interestingly, the dissent agreed that the DCC would render the residency requirement unconstitutional, but that the appellees “should not be able to receive a constitutional remedy in federal court to protect the sale and distribution of a controlled substance which remains illegal under federal law.”  Id. at 560.

Overall, the First Circuit decision provides an interesting glimpse into how subsequent cases addressing this issue could be litigated.  It seems most likely that other federal courts will follow suit and continue to find that the DCC prohibits various residency requirements implemented by states with legal cannabis industries.  Although, the dissent does provide some potential for contrary arguments.  Similar DCC and constitutional issues will be raised in the recent Oregon lawsuit seeking to overturn the prohibition on interstate cannabis sales.  And this type of reasoning can also be applied to other controlled substances, including the up-and-coming psychedelics industry in Oregon and in other states.

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President Biden Pardons Those Convicted of Federal Marijuana Possession

President Biden Pardons Those Convicted of Federal Marijuana Possession; Seeks Review of Marijuana’s Schedule I Status

Yesterday President Biden pardoned all people convicted of marijuana possession under federal law, according to several news outlets.  He also stated that his administration would review marijuana’s status as a Schedule I drug under the federal Controlled Substances Act.

The pardons will clear about 6,500 people convicted of simple possession of marijuana from 1992-2021, and thousands more convicted of possession in Washington, D.C.  Unfortunately, the vast majority of marijuana convictions stem from state laws unaffected by President Biden’s order, but the president did encourage state governors to follow his example.  It remains to be seen whether any governors will follow suit and whether the Departments of Health and Human Services and Justice will seek to re-schedule or even de-schedule marijuana, but this move does represent a long-awaited signal from the Biden administration regarding the overall decriminalization of cannabis and provides relief for thousands of people who have suffered under America’s so-called “War on Drugs.”

This also comes as welcome news to publicly traded cannabis companies, many of whom that have seen significant upticks in stock prices today in response to the president’s actions, showing that today’s events have given some relief to a struggling industry as well as to those directly affected by America’s historically unjust and biased treatment of non-violent cannabis “offenders.”

For more news on this event, see:

https://www.politico.com/news/2022/10/06/biden-to-pardon-marijuana-offenses-call-for-review-of-federal-law-00060796

https://www.cnn.com/2022/10/06/politics/marijuana-decriminalization-white-house-joe-biden/index.html

https://www.nytimes.com/2022/10/06/us/politics/biden-marijuana-pardon.html

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Critical Terms for Intellectual Property License Agreements (Part 1)

By: Sean Clancy

Intellectual property (“IP”) license agreements come in many shapes and flavors.  But all IP licenses boil down to one party giving another party permission to use some IP.

IP may include patents, trademarks, copyrights, trade secrets, and rights of publicity.  Some license agreements cover one type of IP like a single trademark, or copyrights for a single song, or maybe a single valuable data set.  But often a single license agreement covers multiple types of IP.

Because each type of intellectual property differs from other types, agreements covering multiple types of IP require different contract provisions.  A trade secret license requires airtight confidentiality terms, for example, while a typical copyright license may not.  So it’s a good idea to hire an experienced IP lawyer to make sure the contract handles each type of IP correctly.  Regardless of the subject IP, well-drafted IP license agreements address certain critical terms.  This series of blog posts will discuss critical considerations for all IP license agreements.

First, all IP license agreements must identify the correct parties.

Although this might seem obvious, it is worth confirming that key parties are correctly identified, consistent with the purpose of the license.  Licensor grants the rights — so does the identified licensor really own or have the right to license all the IP in the agreement?  Or is some of the IP legally owned by someone else?  Should a subsidiary or other party be licensing this IP instead?  It is critical to confirm the IP owner and understand licensor’s chain of title before entering the agreement.  If a licensor cannot legally license the intended IP, the entire deal could collapse.

Conversely, is the licensee (the one receiving the rights) the correct party to be granted the license?  Or should there be a different licensee?  Sometimes additional parties need to use the licensed IP, beyond the initial licensee, to realize the economic benefit of the deal.  But the parties negotiating the deal might not identify all those additional parties at the outset.  If the licensee has a family of related entities, subsidiaries, or key contractors, are they allowed to exercise the licensed rights too?

Typically, the licensee wants open sublicense rights, meaning the licensee can share the IP rights with other parties.  But the licensor wants control over parties who use the IP.  If the licensee and licensor are sharing profits, both parties may benefit from allowing other entities to use the rights, balancing licensor control with licensee’s right to easily sublicense.

If the parties don’t know all the entities that will need to use the rights, they can specify groups of acceptable sublicensees in advance, define what makes a sublicensee acceptable, or list other pre-approval criteria to qualify additional sublicensees.

Unless the agreement specifically prohibits it, basic contract law presumes that the parties can assign a contract to a third party.  Licensors typically want control over assignments, so they aren’t surprised by some new third party using their IP.  At the same time a licensee will want flexible assignability provisions to account for the possibility of reorganization, merger, or other transfers.

For more on IP licensing agreements, stay tuned for Part 2.

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Right to Try (RTT) Laws: A Battle with Multiple Fronts

By: Kathryn Tucker, JD[1]

Background

We have been leading efforts to open access to the investigational psychedelic drug psilocybin for therapeutic use for patients with life threatening illness through state and federal Right to Try (RTT) laws.[2] RTT laws recognize that these patients do not have the time to await the slow process of new drug approval to be completed and allow access so long as an investigational drug meets certain criteria, including that it has successfully completed a Phase I clinical trial and remains under investigation.

On behalf of Dr. Sunil Aggarwal, a Seattle palliative care physician, and a number of his patients with advanced cancer, we contend that RTT laws provide that these patients ought be able to access psilocybin for therapeutic use now, before completion of later stage clinical trials or the long process of rescheduling.[3] Psilocybin meets the requirements of RTT laws to be deemed an ‘eligible investigational drug’; under the letter and spirit of these laws, it is intended to be available for this population of patients while still under investigation.[4]

This advocacy effort seeks to open a path for access to psilocybin (and potentially other investigational psychedelic drugs, including MDMA) for therapeutic use, bringing a powerful new palliative care tool to relieve debilitating non-physical suffering for those with life-threatening conditions.

The Federal Litigation on the Scope and Application of RTT Laws

Dr. Aggarwal was denied permission to access psilocybin for therapeutic use by the DEA in early 2021. He then filed suit in the Ninth Circuit Court of Appeals in early 2021 asserting the DEA had the obligation to accommodate RTT as the law of the land.  The court declined to reach the merits,  ruling that the DEA’s rejection of the request for access was not sufficiently ‘final’ to enable judicial review.[5] Following that ruling in January 2022, we submitted both a Petition Requesting Waiver, to elicit a sufficiently final decision to enable judicial review, if necessary, and a Petition to Reschedule psilocybin from Schedule I to Schedule II.[6] On June 28, 2022, the DEA again rejected access to psilocybin pursuant to RTT in response to the Petition Requesting Waiver. Accordingly, we return to the Ninth Circuit, seeking assignment to the same three-judge panel, to reach the merits and ask the court to compel the DEA to accommodate RTT.

The Freedom of Information Act (FOIA)

Due to the DEA’s failure to timely respond to these Petitions, we filed a number of Freedom of Information Act (FOIA) requests related to its handling of the Petitions, seeking disclosure of documents which would provide reasoning for such failure. These FOIA requests were labeled “unusual” and “complex”, despite their narrowness; accordingly, we have filed a lawsuit challenging the DEA’s unlawful pattern and practice in labelling virtually all FOIA requests in this manner, which subverts good government and principles of transparency pertinent to the operations of federal government agencies.

An amendment to the federal RTT has been introduced in the US Congress to make abundantly clear that eligible investigational drugs which are Schedule I substances are to be accessible pursuant to RTT, notwithstanding any prohibitions on dispensation, use, transportation, and distribution in the Controlled Substances Act.[7]

[1] Special Counsel at Emerge Law Group, Co-Chair Psychedelic Practice Group. Founding board member of the Psychedelic Bar Association, Co-Chair, Litigation and Advocacy Committee.  Liaison to the American Bar Association. Founding Advisory Board Member, the Initiative on Psychedelics and Healing, Global Wellness Institute.

[2] These laws have been adopted by 41 states and the U.S. Congress. A tremendous efficiency of this advocacy is that it takes advantage of and utilizes the benefit offered by these already existing laws. To give some perspective: enactment of a single state law to open access to psilocybin in a state with a relatively small population costs approximately $5M (e.g. Oregon M109, 2020).

[3] Media interest in the case:  https://www.truffle.report/seattle-doctor-lawyer-speak-out-on-landmark-dea-psilocybin-lawsuit/;  https://www.seattletimes.com/seattle-news/health/new-legal-push-in-washington-state-aims-to-speed-magic-mushrooms-to-dying-patients/;  https://www.marijuanamoment.net/8-states-side-with-cancer-patients-in-psilocybin-mushroom-lawsuit-against-dea/; https://www.scientificamerican.com/article/two-cancer-patients-battle-to-make-psilocybin-accessible-for-palliative-care/ ; https://www.ourmbclife.org/episodes/psilocybin-assisted-therapy-legal-and-advocacy 

[4] For more extensive discussion about RTT laws and their application to psilocybin see https://emergelawgroup.com/avenues-to-access-psilocybin-therapy-in-oregon-a-new-palliative-care-tool-for-patients-suffering-anxiety-and-depression/; https://emergelawgroup.com/nations-first-legal-challenge-to-allow-psilocybin-therapy-in-end-of-life-care-under-right-to-try-laws-moves-forward/

[5] Advanced Integrative Med. Sci. Inst., PLLC v. Garland, 24 F.4th 1249 (9th Cir. 2022).

[6] Both can be reviewed here:  https://emergelawgroup.com/establishing-a-pathway-to-access-psilocybin-for-use-with-patients-with-advanced-illness-update/.

[7] The “Right to Try Clarification Act”.

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Update re AIMS et al. v. DEA: DEA Doubles Down in Denying Dying Patients Access to Psilocybin

By Kathryn Tucker, JD[1]

In January 2021, Dr. Sunil Aggarwal, a respected palliative care physician and founder of the Advanced Integrative Medical Science (“AIMS”) Institute in Seattle, sought authorization from the DEA to obtain psilocybin for therapeutic use with his dying cancer patients. Psilocybin is an investigational drug shown to be remarkably effective in relieving debilitating anxiety and depression suffered by terminally ill patients. The Washington and federal Right to Try (“RTT”) Acts provide for dying patients to have access to investigational drugs that have completed Phase I clinical trials and remain under investigation, recognizing that these patients do not have the time to await the slow process of new drug approval.

Because psilocybin is a Schedule I controlled substance, no supplier would provide psilocybin to Dr. Aggarwal without DEA’s approval. In February 2021, DEA rejected Dr. Aggarwal’s request for access.  This decision contravened RTT laws; accordingly, Dr. Aggarwal sought judicial review of DEA’s determination in the United States Court of Appeals for the Ninth Circuit. Extensive briefing, including amicus participation by a multitude of parties ranging from Cato Institute and ACLU, and a bipartisan group of States, was submitted. Oral argument was heard in September 2021. The court dismissed the petition on January 31, 2022, concluding that DEA’s rejection of Dr. Aggarwal’s request was not sufficiently “final” for purposes of judicial review, hence the court lacked jurisdiction to reach the merits.[2]

Following the ruling Dr. Aggarwal immediately requested that DEA provide a “final decision” on this urgent matter, so that he could either be granted access and provide care to his patients with this investigational drug or return to court. By letter issued on June 28, 2022, the DEA, again, rejected access:

“This latest request effectively restates the grounds that you previously submitted to DEA…. Accordingly, DEA considers your latest correspondence as a request for reconsideration of the agency’s letter to you dated February 12, 2021. DEA finds no basis for reconsideration of its February 12, 2021, letter because the legal and factual considerations remain unchanged.”

This June 28 letter seems to fly in the face of the agency’s argument in the litigation that it had not issued a final decision. It appears to be the agency doubling down on a decision that no access pursuant to RTT would be granted. In an abundance of respect to the administrative process, Dr. Aggarwal has asked the DEA to confirm that its June 28 letter is indeed ‘final agency action’ so that there can be no doubt about this when we return to court.

If we must return to court we will ask that the same three judge panel hear the case, as the issues were fully briefed and argued to that panel in 2021. We will seek expedited review, because of the urgency presented by the inexorable progression of terminal illness faced by Dr. Aggarwal’s patients.

[1] Special Counsel at Emerge Law Group, Co-Chair Psychedelic Practice Group. Founding board member of the Psychedelic Bar Association, Co-Chair, Litigation and Advocacy Committee.  Liaison to the American Bar Association. Founding Advisory Board Member, the Initiative on Psychedelics and Healing, Global Wellness Institute.

[2] See RCW 69.77 et seq. (Washington RTT); Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, Pub. L. No. 115-176, § 1, 132 Stat. 1372, codified at 21 U.S.C. § 360bbb-0a (Federal RTT).

[3] AIMS v. Garland, 21-70544.

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FRANCHISE LAW

Franchisors

Franchise law is a heavily regulated area of law.  We help clients expand their businesses through franchising and other distribution methods. We have experience in many industries including, restaurants, health, and beauty, alcohol, and cannabis among others. Our representative services include the following:

Franchisees

We also help potential franchisees interested in buying a franchise. We are able to assist with evaluation of franchise opportunities with respect to:

Alternative Structures

However, not all businesses are suited to franchise. We are also experienced with helping clients structure alternative distribution methods to prevent classification as a franchise.

MERGERS AND ACQUISITIONS

Our M&A attorneys are highly experienced in counseling clients who are considering acquisitions or exit strategies.  We have many years of experience handling deals of various types and sizes, ranging from sales of small closely-held business, private companies, and publicly-traded corporations.  We have represented business owners, private equity firms and investment banks in a wide range of industries. 

We have a deep business bench, and Emerge attorneys have handled transactions of all shapes and sizes.  Whether your deal is valued at $100,000 or $100,000,000, our experienced attorneys will guide you through the deal process.

We understand the intensity, technical skill and judgment needed to get deals done, and we provide our clients with timely, practical and cost-effective legal advice.  We are highly capable in all aspects of M&A, including the following:

CANNABIS INDUSTRY

Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.

Emerge attorneys were instrumental in the drafting and passage of Oregon Measure 91, legalizing marijuana in the State of Oregon, and have represented cannabis businesses well before many law firms were willing to enter the cannabis industry. As a firm that has provided legal services in the cannabis space for many years, we are familiar with the unique and complex issues businesses and individuals face in an emerging and highly regulated industry.

We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.

PSYCHEDELICS

There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including terminally ill patients suffering with anxiety and depression. Until recently, psychedelic substances have been accessible only in the illicit market and are illegal under federal and state to manufacture, distribute, or possess. These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application. As such, no one invested in this area or required legal services, outside of the criminal context.

Today, researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the Controlled Substances Act. Companies are now actively raising money to develop intellectual property and seize market opportunities associated with psychedelic drugs.

In addition, advocates at the state and local levels are not waiting for the rescheduling of these substances and are active in undertaking efforts to decriminalize these substances and/or make them affirmatively legal under state and/or municipal law. Decriminalization already has occurred in cities including Denver, Oakland, Santa Cruz, and Ann Arbor. Oregon is poised to be the first state to make psilocybin therapy affirmatively legal. Emerge Law Group is working with a wide array of clients pushing forward in this emerging area.

See our Psychedelics Practice Group page for more information.

TAXATION

CORPORATE AND PARTNERSHIP TAX

Businesses of all kinds benefit from a customized but systematic approach to structuring legal relationships. Emerge Law Group helps businesses and business owners with a variety of tax planning matters.

Representative client services include:

ESTATE PLANNING

Estate planning encompasses everything from a will and power of attorney to combined estate and business succession planning. In almost all cases, the purpose of the plan is to help the client protect those they care about most in the event they can no longer be there for them.

Emerge Law Group has experience with a wide range of tools used in estate planning, including wills, trusts, and family business entity planning.

TAX CONTROVERSIES

Emerge Law Group can assist with the resolution of difficult tax controversies. Our areas of emphasis and experience include:

REAL ESTATE TRANSACTIONS

Emerge Law Group assists clients with a wide range of real estate transactional matters.  We regularly help clients with:

LAND USE

Emerge Law Group also assists clients with all aspects of local government land use and development processes, ranging from preliminary property analyses and building permit issues to complex land use reviews and hearings. Our attorneys are experienced in obtaining land use entitlements and development permits for a wide range of uses.

We regularly help clients with:

Above all, we understand the value of working with cities and counties to enhance communities while developing the land to its potential. We strive to create solutions to land use issues that serve to better our clients and the communities in which they live and work.

LITIGATION AND ALTERNATIVE DISPUTE RESOLUTION

The attorneys in Emerge Law Group’s Litigation and Alternative Dispute Resolution practice group litigate commercial, intellectual property, and public interest matters in state and federal courts, as well as private mediation and arbitration proceedings.  Our lawyers have represented national and regional financial institutions, major media, entertainment and technology companies, and other Fortune 500 companies in a broad array of high-stakes disputes.  Our team of litigators has handled leading cases that have shaped the law in cutting-edge business, technology, free speech, and public interest impact lawsuits in trial and the courts of appeal.

We have particular expertise in handling civil litigation and regulatory enforcement matters in the cannabis and psychedelic industries.  While many firms claim expertise in the these industries, few have our depth of experience successfully litigating contract, trademark, partnership, shareholder, land use, and real estate disputes in court and arbitration.  Even fewer firms have our level of experience handling writ of mandate proceedings against the government regulators.

Our litigators practice in California, Oregon, and Washington, but have appeared in state and federal courts nationwide.  Our knowledge of our clients’ businesses, goals and concerns, and our experience litigating at the highest levels, give us unique insight into possible outcomes and pitfalls as we continuously confront issues of new impression.

No matter what the industry, we pride ourselves in achieving our clients’ objectives through efficient and creative solutions primarily designed to avoid disputes in the first place—which is always the best litigation strategy.  Many times, our clients obtain excellent outcomes before or at the earliest stages of litigation because our adversaries quickly recognize the challenges they will face in litigating against us.  When litigation is unavoidable, however, we work hard to provide our clients with both cost-efficient and “big firm” quality representation.

 

INTELLECTUAL PROPERTY

Your intellectual property (or “IP”) strategy can harness your most valuable information and intangible assets including your name, your brand, your designs, your content, your services, and your products — what makes your business stand apart in a competitive world.  We can help you evaluate and build your IP portfolio, then secure it, monetize it, and protect it.

IP encompasses multiple areas of law and different types of information or material.

Our Intellectual Property practice focuses on:

TRADEMARK

Trademarks include names, signs, logos, designs, phrases, slogans, expressions, and sometimes even colors, sounds, or smells that identify or distinguish one business compared to others.  Trademark protection is fundamental in securing your “brand.”

COPYRIGHT

Copyright covers original works of creative authorship fixed in a tangible medium of expression.  This includes literary, dramatic, musical, and artistic works, such as poetry, novels, designs, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  Depending upon the type of work, “moral rights” (such as the right of attribution) may be implicated as well.

TRADE SECRET

Trade secret laws can vary somewhat between states, but generally trade secrets cover information, including drawings, cost data, customer lists, formulas, recipes, patterns, compilations, programs, devices, methods, techniques or processes that derive economic value from not being generally known and are the subject of efforts that are “reasonable under the circumstances” to maintain secrecy.

PRIVACY

Depending upon where you live or operate, there is a special patchwork of laws and regulations that protect and regulate personal information.  If you are handling or giving out personal or potentially sensitive information, you may be implicating privacy laws.

PUBLICITY

Publicity rights address the commercial use of an individual’s face, name, image, or likeness.  These rights vary state-to-state.  Marilyn Monroe, for example, lived in multiple states which created complex questions about her publicity rights.

Our Intellectual Property services include:

FINANCIAL INSTITUTIONS

In states where new cannabis banking opportunities exist, Emerge Law Group has the proven expertise in creating canna-banking programs to efficiently capitalize on those opportunities. Our Banking Practice Group specializes in working with banks and credit unions to develop regulatory compliant programs and operational best practices. We also train banking staff to become experts in canna-banking so they can effective understand and manage the risk affiliated with canna-banking.

We regularly help clients with:

EMPLOYMENT LAW

At Emerge Law Group, we recognize that employees are the heart and soul of any successful business.  Our Employment Law Practice Group works with employers to help them effectively manage their workforce, navigate the complex web of federal, state and local employment laws and, if necessary, defend against claims before administrative agencies and in court.

We regularly help clients with:

CORPORATE FINANCE AND SECURITIES

Our corporate finance and securities lawyers are experienced attorneys who have practiced at large law firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We work with clients to help achieve their financing goals while safely navigating the highly technical securities law landscape. 

In addition to representing issuers, we also routinely represent institutional and individual investors, including in connection with fund formation and investments.

Our expertise includes:

We have a deep understanding of the financing options available to businesses, including simple unsecured loans, asset-backed financing, convertible debt, common and preferred equity, crowdfunding and various other structures.  We work closely with our clients to understand their business and financing needs, ensure they are prepared to approach investors and choose the right partners, structure and negotiate terms, navigate the due diligence process and successfully close the deal.

COMPLIANCE AND LICENSING

ALCOHOL AND BEVERAGE INDUSTRY

Emerge attorneys have represented businesses in the alcohol and beverage industry, including wineries, breweries, distilleries, restaurants, bars, movie theaters, golf courses, and gas stations.  We can help you vet new locations, acquire existing locations, and apply for the appropriate liquor license.  We also provide training to comply with applicable rules and regulations, prepare operating procedures, submit renewals, and keep clients protected in the event of any potential violations or administrative hearings.

CANNABIS INDUSTRY

Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.  We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.

PSYCHEDELICS INDUSTRY

Emerge Law Group is a leader in the psychedelics industry.  There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including veterans struggling with PTSD and terminally ill patients suffering with anxiety and depression.  Until recently, psychedelic substances have been accessible only in the underground; they are illegal under state and federal law to manufacture, distribute, or possess.  These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application.  As such, businesses have not invested in this area or required legal services, outside of the criminal context.

Today, psychedelics are proceeding toward legalization on multiple paths.  Researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the federal Controlled Substances Act, opening legal access to them.  Private and public companies are now actively raising money to develop intellectual property and capitalize on the market opportunities associated with psychedelic drugs.  Opportunities to be early actors in this new arena are tremendous.

See our Psychedelics Practice Group page for more information.

BUSINESS AND CORPORATE

Our business transactions team is made up of highly experienced transactional attorneys who have practiced at large law and accounting firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We understand complex legal matters and provide high quality legal services in a cost-effective manner.  Our clients value our experience, knowledge and judgment.

ENTITY FORMATION

Our team routinely advises clients regarding:

CORPORATE GOVERNANCE

Emerge attorneys also advise on-going concerns with: