Protect your cosmetic business: top tips for safeguarding your crown jewels

When embarking on a new business venture, you’ve already got your hands full. You’ll be juggling the demands of product development, looking for investors to raise much needed capital, making endless decisions and ensuring you have the right team around you.

In the midst of these demands, it can often be the case that critical legal considerations become less of a priority and may even be missed completely. There’s 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 you to significant liability and risk, causing your business to stall before it is even off the ground.

We’ve put together a list of key considerations for companies starting up in the cosmetics, beauty and personal care sector to help you ensure that your venture gets off to the best possible start and is built on solid foundations.

1. Who owns the IP in your product?

A fundamental tip is to ensure you own the IP in your product from the outset.

Make sure any employees have contracts in place confirming any IP they create is owned by the company.

If there are co-founders in the business, you should 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.

2. 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.

3. Do you have a formal agreement in place with the manufacturer?

The manufacture of your products is vital to the success of the cosmetic business and your products. If done well, it will ensure consistency of production, delivery times and will have a major impact upon your business.

Therefore, you should ensure you 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 manufacture 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.

4. 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!

5. Who owns the IP in your website?

Paying someone to design your website does not necessarily mean that you own the rights to the design and functionality of the website.

In fact, without an express agreement to the contrary, the rights to the underlying design will belong to the creator and they can often keep you bound to them if you want to continue to have access to, or develop, the website. You should therefore ensure that you have an agreement in place which gives you ownership of the website, all content on it and the freedom to move to another developer should you choose to.

6. Have you incorporated a company?

By setting up a registered company you are protecting your own personal assets, as 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).

Whilst incorporation means that your business name is protected at Companies House 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 2 above).

7. 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 1 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.

8. Do the directors have service agreements?

Directors, in particular, will have essential knowledge concerning 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.

9. 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.

10. Does your packaging meet environmental standards?

You also need to 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/misleading information about the environmental impact of your products and company operations.

11. What terms apply to your contracts with sellers?

You will also want to 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 they 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.

12. 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 the 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.

13. 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. You should 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.

14. 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.

A privacy policy sets out why and how you will be collecting and processing personal data, how long you keep it for and what happens to it when it is no longer required. Ensuring your privacy policy is readily available to anyone who deals with your business is part of complying with the transparency principle.

If your website is not compliant then you risk a fine or further legal action from the ICO and it’s much easier to have these policies on your website then deal with the fall out of an ICO investigation.

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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.

If you’d like to discuss your cosmetic business venture and any of the considerations highlighted above, we’d be happy to speak with you further and share our knowledge of the sector with you.

Please get in touch with Rebecca Howlett