Top tips for cosmetics companies to protect their crown jewels
Industry expert Rebecca Howlett at Freeths provides a practical checklist to protect a company’s most valuable intellectual property
When embarking on a new business venture, cosmetics innovators have their hands full. They will be juggling the demands of product development, looking for investors to raise much-needed capital, making endless decisions and ensuring the right team is in place.
In the midst of these demands, critical legal considerations can become less of a priority and may even be missed completely. There is just too much else to think about and it all needs to be done immediately – right? But failing to consider these key priorities can expose a business to significant liability and risk, causing a stall before a new beauty product is even off the ground.
That’s why the beauty and cosmetics team at Freeths created a list of the key considerations for companies starting up in the cosmetics, beauty and personal care sector. It is a way to help you ensure that every venture gets off to the best possible start and is built on solid foundations.
Who owns the intellectual property in your product?
A fundamental tip is to ensure your company owns the IP in your products from the outset. For example, make sure employees have contracts in place confirming any IP they create is owned by the company.
If there are co-founders in the business, transfer the IP to the company. If you are developing and manufacturing the product externally, for example through a cosmetic chemist/scientist or a manufacturer, it is essential to have an agreement in place to clarify who owns the IP in any product formulations and production.
Without an agreement in place the third party will own the IP, so ensure you agree in writing that all IP belongs to your company.
Have you trademarked your brand and any product names and logos?
Registering your trademarks protects your brand names and logos from being copied by other companies. Registration also gives you the tools to prevent someone else using similar signs and names for their products and benefiting from your reputation and goodwill to get their business off the ground.
It is vitally important to carry out trademark clearance searches before you start using your brand name. We have seen countless examples of businesses either facing infringement proceedings or not being able to register their chosen brand name as it is already in use.
Carrying out searches and registering early avoids the unwanted pain and stress of infringement litigation and the costs (both emotional and financial) of rebranding further down the line when the business has gained traction and visibility.
Do you have a formal agreement in place with the manufacturer?
The manufacture of your products is vital to the success of both the business and your products. If done well, it will ensure consistency of production, delivery times and will have a major impact upon your business.
This is why you must have a robust manufacturing agreement in place with any third parties making your product.
This agreement will be bespoke to your products, should have a detailed specification of the formulations and require the manufacturer to provide samples of the products.
You should also have rights to periodically inspect the manufacturing premises to ensure production is in line with the agreement (including the formulations specification), deal with product recalls and ensure the products are being manufactured in accordance with modern slavery and child labour laws.
Is your confidential information protected?
Non-disclosure agreements, or NDAs, should be used to protect your confidential information, including: product formulations, ingredients, pricing, branding, supply chain information and customer details.
Be careful with what you share and avoid giving away all your business secrets, even when you have an NDA in place. The best way to protect your crown jewels is not to give them away in the first place.
Who owns the IP in your website?
Paying someone to create your website does not necessarily mean that you own the rights to the design and functionality of it.
In fact, without an express agreement to the contrary, the rights to the underlying design belong to the creator. That creator can often keep you bound to them if you want to continue to have access to, or develop, the website. With a clear agreement in place, you retain ownership of the website, all content on it and the freedom to move to another developer if you choose.
Have you incorporated a company?
By setting up a registered company, you are protecting your own personal assets. A company has its own separate legal identity and meets its own liabilities, rather than you personally. So, by registering a company and using this as the trading entity for the business, your personal assets will be protected if the business faces any problems (unless of course you give any personal guarantees, which we advise you resist).
While incorporation means that your business name is protected and no one else can register a company with the same business name, it is a common misconception to believe that this means your brand name/logo is also protected. You will also need to register your trademark for brand protection (see point two above).
Do your employees have employment contracts?
It is a minimum requirement for employees to be given at least a statement of terms which complies with section one of the Employment Rights Act 1996. A more comprehensive employment contract can provide clarity on the employment relationship generally, including placing obligations on employees to protect confidential company information alongside essential policies.
Do the directors have service agreements?
Directors, in particular, will have essential knowledge about the operations of the business. As with other employees, there should be a contract in place to manage their employment. A well-drafted agreement can also be used to protect trade secrets and prevent them from setting up in direct competition with your business.
Does labelling on your products meet legal requirements?
UK legislation provides strict requirements for labelling on cosmetics (the container and any packaging). This is primarily for health and safety purposes, such as listing ingredients, use by date, precautions for use and it must be easy to read. Ensuring you understand and meet these requirements is crucial.
Does your packaging meet environmental standards?
Be careful that any environmental claims on your packaging or advertising are correct and you can substantiate them. Greenwashing is a strategy which is under the spotlight and can be damaging to brands whatever their size. You must not give any false or misleading information about the environmental impact of your products and company operations.
What terms apply to your contracts with sellers?
Ensure that any contract between you and a purchaser or distributor of your products is on terms favourable to you.
If you operate on a third party’s terms, those will protect them and leave you open to risk and liability. A standard set of terms and conditions drafted for your business is vital to protect your position and enable your business to go from strength to strength.
Are you using influencers to market your products?
If you are engaging any influencers to promote your brand and products, there should be a written agreement in place to govern the relationship.
There are legal requirements which need to be documented when working with influencers and we have all seen the examples of when things go wrong. Entertaining for us, but suicide for brands. Make sure you have the ability to withdraw content which does not align to your brand and can terminate the agreement if your influencer falls out of glory.
Does your website state the terms and conditions which apply to any online purchases?
Consumers have specific rights surrounding pre-contract information and cancellation when purchasing online compared to in-store. Ensure that your website has terms and conditions which comply with consumer protection legislation (such as cancellation and returns) and which also detail how they can access and use your website.
Do you have a privacy notice and cookies policy regarding processing of customer data?
If you are intending to sell your product online directly to consumers, you are required to have measures in place to comply with UK GDPR and the Data Protection Act 2018.
If your website is not compliant, then you risk a fine or further legal action from the Information Commissioner’s Office. It is much easier to have these policies on your website than deal with the fall out of an ICO investigation.
We know that this list of considerations and requirements may seem daunting, but we are here to help guide you through the process and have extensive experience of working in this fast-moving and competitive sector.
Rebecca Howlett has significant experience in the beauty and personal care industry and heads Freeths’ specialist beauty and personal care offering, advising on commercial agreements, branding and growth strategies. She can be reached at email@example.com or on 0345 166 6338.
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