July 5, 2016

Who Owns the Formula?


Disputes can occur between Brand Owners, Contract Formulators and Contract Manufacturers over who owns the Intellectual Property of a formula.

A lot of brands assume they own a formula because they have brought a product to market, even when its Private Label, but this is not necessarily correct. So, who owns the formula? It depends on the scenario under which it’s been created and we’ve provided you with a brief overview here of the various scenarios, and who can normally claim ownership in each case.

Scenario 1: You formulated the product and it’s your brand; you’ve provided the formula to a Contract Manufacturer to have it manufactured. This is perhaps the simplest scenario. Where you have formulated the product, it is your formula, you’ve created samples and provided the formula, method and those samples to the manufacturer to be recreated but in a larger batch ‰ÛÒ it‰Ûªs your formula and you have full Intellectual Property ownership. Be careful though, if changes are required and you don’t make them, refer to Scenario 2.

Scenario 2: You formulated the product and it’s your brand; you’ve provided the formula to a Contract Manufacturer and changes are made to the original formula. If you have provided a formula, method and samples to a Contract Manufacturer and then you require changes to be made, the ownership of the Intellectual Property could change. If: You make the changes and provide a revised formula, method and sample, then it is still your Intellectual Property; or The contract manufacturer makes the changes but you pay for their time in making the changes, then they should provide you with the revised formula, method and samples and Intellectual Property ownership should be yours; or The contract manufacture makes the changes but you don’t pay for their time in making the changes, they may have grounds to keep the revised formula and method as their Intellectual Property and manufacture the revised product under agreement to you but you probably won’t in this scenario own the Intellectual Property rights to the final formula. This is definitely a scenario where disputes arise. You should refer to your Contract Manufacturing/ Development Agreement with your manufacturer in this case BEFORE you allow them to make changes to your original formula and method, so that it is clear who will have full ownership and rights to the Intellectual Property before you proceed.

Scenario 3: You pay a Contract Formulator/Contract Manufacturer to create the formula for you but you own the brand. Make sure you have agreed on price of the formula/method before commencing and have a development agreement in place which clearly stipulates who will own the Intellectual Property on completion (which includes finalising payment). Under this arrangement, once the formulation and method has been approved and final payment has been made, the Intellectual Property is usually passed to the Brand Owner as this signifies completion.

Scenario 4: You have a formula created for you to a specific brief by a Contract Manufacturer/Formulator but don’t pay separately for it. In this scenario, we are suggesting that you will proceed to get product manufactured, and pay for the manufactured batch, but lets be really clear: in this scenario, we’re also suggesting that you haven’t actually paid separately for the formulation part. Again, you should have a Development and Contract Manufacturing agreement in place which should clearly stipulate the ownership on completion, and this would typically be that the Intellectual Property remains the ownership of the Formulator/ Manufacturer, but the batch is yours to sell. This is by far the most contentious scenario, and one fraught with misunderstandings. Even if you have created the brief/concept of the product AND have paid for the manufacture of the finished product, if you have not paid for the R&D time to the Formulator or Manufacturer, then it would normally remain their Intellectual Property. Be wary of Formulators/Manufacturers that will formulate at no charge. You need to make sure you clarify with them what their expectations on Intellectual Property over that formula and method will be, once the product gets manufactured. Usually, unless you are paying for the R&D work, the Brand Owner will not get the Intellectual Property rights, formula or method. The batch is yours to sell but you won‰Ûªt be able to take your formula and method to another manufacturer. This is also the scenario with Private Label.

Scenario 5: You have product manufactured under Private Label. Of course you need to pay for production of the batch under this scenario, and even though the finished product will wear the Brand name, all Intellectual Property rights will remain with the Manufacturer. You will have no rights to claim ownership of the Intellectual Property, formula or method under this scenario and that includes prohibition on Reverse Engineering to have the product created by another Formulator or Manufacturer at a later date. As with any dispute over Intellectual Property, you may need mediation and/or adjudication through a legal process to provide final ownership decisions.

The guidance provided here is of a general advisory nature but can be altered by the specific conditions of any agreement you have entered into with other parties. Make sure you start the development and manufacturing process with a clear agreement in place to avoid later disputes, and seek appropriate legal clarification based on that agreement should issues arise at a later date. WANT TO LEARN HOW TO GET IT RIGHT? Want to improve your skills and knowledge as a: Cosmetic Formulator, Brand Manager, or Regulatory Affairs Associate? Study with the Institute of Personal Care Science they have a range of Formulating, Brand Management and Regulatory Diplomas, Certificates, short courses and workshops that can see you comprehensively trained and/or rapidly up-skilled in key areas, all from the convenience of a time and place that suits you with: All distance (on-line) study 1-on-1 tutorial support via skype or phone with our trainers. Flexible study options study full time, part time or very part time from as little as 5-6 hours per week!

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