INTELLECTUAL PROPERTY 31
Formulating and considering intellectual property
Gint Silins PhD – Cullens Patent & Trade Mark Attorneys, Australia
Bringing to market an exciting and unique cosmetic formulation is the dream of many entrepreneurs and in many instances the assistance of an expert formulator and/or manufacturer (hereafter simply referred to as a ‘manufacturer’) will be required. Although experience and track record are obvious things to consider when selecting a formulator, there are less obvious things to consider as well. Some of those less obvious things have to do with intellectual property (IP).
Discussion: formulations Entrepreneurs, before switching-off because you believe IP is of no relevance to you or belongs in the too-hard basket, please bear with me and consider these what if and what the…?! scenarios: You pay a manufacturer to develop a unique formulation based on your new idea, only to discover that the manufacturer begins selling the same or near identical formulation to others. It turns out that there is nothing barring the manufacturer from engaging in this kind of activity because there was no agreement on that point. In fact, it was never discussed, just assumed that the manufacturer could not do this. This is devastating. Your point of difference in the marketplace has just dissipated.
You pay a manufacturer to come up with a unique formulation for you and subsequently discover that the formulation infringes the patent rights of a third party and so cannot be sold in the marketplace. This might take place several years after product launch, result in the recall of all infringing product, incur high legal fees and so cripple your business. You might wonder, should manufacturer not have known about this or have warned you of this possibility? But again, there was no agreement on that point. In fact, the scenario was never even contemplated.
You wish to shift your business from a manufacturer, only to then discover that the manufacturer will not release the recipe and, in fact, owns the recipe.
April 2018
Ownership was never discussed, just assumed because you paid the manufacturer for its services. But which services? So there may not be anything you can do about it apart from starting again or attempting to reverse engineer the formulation.
I am not suggesting for one moment that manufacturers engage in unscrupulous activities. It ultimately comes down to the nature of the deal initially struck between the entrepreneur and manufacturer. The entrepreneur will have expectations, as will the manufacturer. Where things go wrong is where those expectations are not aired and, more importantly, not recorded in a written agreement. To complicate things, few manufacturers and entrepreneurs have a good understanding of the potential range of IP issues at play when entering into an agreement and commercialising a formulation, so they tend to get overlooked. It is usually when the relationship becomes strained that the entrepreneur discovers what rights he or she has or does not have. By then it is usually too late for change.
Based on my experience in this industry, you would be wrong to think that all
manufacturers utilise written agreements. They do not. You would also be wrong to think that those who do have written agreements utilise a sort of standard universal written agreement. There is no such thing. Most agreements differ. Some have good points, some have bad points. However, having said this, I have seen many excellent comprehensive agreements that clearly explain the rights of the entrepreneur and manufacturer (I suspect these are the businesses that have survived disputes and so have learnt the hard way.) So what types of IP-related issues should be discussed and potentially appear in an agreement or should at least be agreed upon if relying on a verbal agreement (which I do not recommend)? Ten suggestions follow:
What is the scope of the service? When engaging a manufacturer it is of paramount importance to document the scope of the service that is to be provided. Is the scope of the service to develop a specific formulation (and process for making it) for a particular purpose, such as a formulation having specific ingredients and specific quantities of those ingredients (eg.
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