If you have built or are building your skincare or body care lines, you’ll want to understand how trademarks, copyrights, and IP affect your business, and also what you can do to protect yourself and your companies. I am not a lawyer, and nothing I write here should be considered legal advice. I hope, though, that it can help you frame the questions you ask your contract manufacturer, and also get you thinking about how to protect your business.
What is IP?
For those of you who don’t know this term, IP stands for Intellectual Property, which deals with creations, including cosmetic formulas.
According to Wikipedia “Intellectual property (IP) refers to creations of the intellect for which a monopoly is assigned to designated owners by law.[1] Intellectual property rights (IPRs) are the protections granted to the creators of IP and include trademarks, copyright, patents, industrial design rights, and in some jurisdictions trade secrets.[2] Artistic works including music and literature, as well as discoveries, inventions, words, phrases, symbols, and designs can all be protected as intellectual property.”
In cosmetic private label business, when you hear people talking about IP, they can mean a lot of things, including:
- Trademark for the brand owner’s business enterprise
- Trademark for the brands
- Trade secrets in the event of a sale of service. e.g. trade secret for a beauty procedure
- Patent for any scientific innovation in the industry
- Unique formulations
- Licenses where distributorships are ideal
- Copyright for websites and magazines
What this article will try to address are the questions surrounding IP and your formula, which includes ingredient sources and the methodology for manufacturing the product.
Why You Might Need to Own the IP
There’s a lot of buzz in the market about the need to own the IP to your formulas. If you have investors in your company, or if your business goal is to build a business and sell it, you may want to have the IP as an asset. If you purchase the IP, you can take your formula to another contract manufacturer, and therefore mitigate the risk of the original contract manufacturer going out of business, or falling out of favor with you. By owning the IP, you do not have to pay another manufacturer to reverse engineer your product, although you will likely need to pay R&D fees for the new lab to successfully create a test batch of your formula before going into production.
IP and the EU
If you are selling into the European Union (EU), one of the requirements you will face is that you will need to provide the formula for your product. If you’ve purchased the IP, the formula is yours, and you can share it with whomever, including the EU certification agencies. However, if you have not opted to purchase IP, your manufacturer will likely not give you a copy of the formula to share. Instead, you will submit a Certificate of Manufacturing, (CoM) which provides information about your recipe in percentage ranges. Most agencies will accept a CoM, and you will not have to purchase your IP to meet the EU requirements. Other countries and regions have different requirements for import and sales of cosmetics, so you’ll want to check with each market you wish to sell in. Some consultants specialize in helping companies enter different markets. Depending on your budget and goals, it may be worth it to you to hire one.
Not every Formula is For Sale
When you contract with a manufacturing partner to formulate your products, you can usually choose between four different options for formulation services:
- Private label of stock products,
- Semi-customization of stock products,
- Custom formula creation,
- Customer provided formulas.
Typically when you private label stock product, the IP remains with the contract manufacturer. Anyone can purchase the stock product and sell it under their brand. The rights to the formula, ingredient sources, and methodology all remain with the contract manufacturer. For semi-custom products, the IP of the base product remains the property of the formulating company, and some companies may let you buy the IP for the new product, with the stock product as an ingredient, and some may not. Custom formula creation is also a company-by-company decision; at EWL we will sell customers the IP for their custom products. You’ll pay separately for the R&D and the IP.
Review the manufacturing contract to ensure neither your semi-custom or custom formula will be made for anyone else even if you do not purchase the IP. Ensure your customer-provided formulas remain your property. Delve into the details around IP. Answer questions like, who owns the derivative formula if the formulator has to modify your formula for scale up? A recipe that works in a small batch doesn’t always scale 1:1 when you compound larger quantities.
Custom Formulation vs. Private Label
Owning the IP for your formulas can be necessary or just a precaution depending on the goals of your company and your risk tolerance. We find most businesses we work with do not purchase the IP but rely on our manufacturing agreement which prohibits us from making a formula– other than stock product, for anyone but the company the formula was created for. If you are unsure of your future needs, take into account that you can’t purchase the IP for products made by semi-customizing an existing stock formula. You’ll generally get to market much faster if you private label a stock product, but you will have a unique formula if you take the time to formulate something just for you. During your decision-making process about which route to take, be sure to balance the need to own the IP with time to market. You may want to start with a stock product and once you see your market penetration, take the time and extra money to formulate something unique.
You may also find that you want to own the IP for some of your products, say a facial serum or a shaving creme, but not for others. If your primary value proposition is around a gorgeous shave, then you might want to custom formulate and purchase the IP for a shaving cream, but don’t need to create something unique for the beard oil you want to add to your line.
Protecting your Brand
Ultimately, IP and trademarks are legal and marketing decisions. You’ll want to discuss with your legal advisor the implications of owning IP or not, and also how to trademark and protect your brand and your brand’s image. Take the necessary precautions you can to protect what you’ve worked so hard to create. Owning your IP may be one way to protect your brand, as is making sure your contract manufacturing agreement fully addresses the protections you need.
If you have questions, please let us know in the comments below. And if you want to share your story about formulas, IP, and trademarks, please do.
