My Lab Says THEY Own My Formula.. Now What?
My Skincare Lab and Manufacturer Shut Down/Raised Minimums/Won’t Release my Formula…Now What?
So your skincare lab or manufacturer can’t offer you what they once could, but they know you and your formula best. What can you do to keep your skincare line still on the market with a steady supply?
Not to worry, Genie Supply has you covered!
In this blog we will discuss what to do when your lab shuts down or when you just want to change skincare manufacturers for any reason. Keep reading to find out what factors you should consider when changing beauty labs, and finally how Genie can help you!
Keep in mind, we are not lawyers by any means, so before making a move that might cause some legal implications you should always consult a lawyer first! Now that we have the disclaimer out of the way, let's get into the good stuff!
Can I Just Switch Labs?
Many people have found themselves looking for a new beauty lab to produce their products, but don't even know where to start. Whether your current lab has shut down or you would just prefer to do business with someone else, there are a lot of factors to consider when making the decisions about the next step for your skincare or cosmetic line. Here are some questions and considerations you should take into account when changing beauty labs:
Formula Ownership: Am I private labeling or do I have a custom formula? I.E. Does my company or the lab own my formula?
Circumvention / Re-formulation Rights: Have I signed or agreed to a non-circumvention agreement? Always review all contracts and agreements you have signed in regards to your skincare line with your lab.
Before we get into Lab Speak, I’m going to first give you an easy example that demonstrates both private labeling and custom formulating / contract manufacturing. Hopefully this can help you understand as you go along this blog:
Private Labeling (Circumvention not explicity) - You go to a bakery that makes a cake that you LOVE. You go all the time and buy it. One day, the bakery says they no longer make that cake. But you love it! You want it!
So you offer to buy the recipe so you can make it yourself, or another bakery can make it. “Sorry, not for sale” they say. There’s nothing you can do with this bakery, but this bakery never had you sign a piece of paper saying you wouldn’t try to make it yourself, so, you could go to another bakery and ask them to make the same cake or try it yourself, but it may never be exactly the same, and you could spend a lot of money just trying to get the recipe close to the original.
Private labeling (No Circumvention) - This bakery DID have you sign a piece of paper before you were ever allowed to buy your first cake, saying you wouldn’t go around them (circumvent) and try to make it yourself or have another bakery make it. So when they stop selling to you, give up. That cake lives only in your dreams now.
“Custom Formulating” (No Ownership) - You went to a bakery and told them about a cake that you dreamed of. Maybe you even brought in a recipe you make at home and said “I love it, but it needs to be more fluffy!” The bakery then does some work on their own to make the cake. You go in one day and they say “We’ve done it! We made your cake idea!” You love it, and buy a whole cake. And another, and another. But one day you say “Hey, can you give me the recipe for MY cake?” “No can do - It’s ours, not yours.
You had an idea (or a recipe), but we did the work. It’s ours.” Regardless of whether money was exchanged for their work, if you don’t have a piece of paper saying you own the final results, you’re SOL unless they decide to stop selling it in their bakery and sell the formula to you. Then you have to find a bakery to make it for you (and only you!) or license the recipe back to the bakery for them to make and sell cakes to everyone, including you. Yikes.
“Custom Formulating” (Outright Ownership) - You went to a bakery and told them about a cake that you dreamed of. Maybe you even brought in a recipe you make at home and said “I love it, but it needs to be more fluffy!” You pay money and sign a contract saying you exclusively own the end results. The bakery then does some work on their own to make the cake.
You go in one day and they say “We’ve done it! We made your cake idea!” You love it. It’s yours. The bakery cannot make it for ANYONE but you, or you can sue them. They don’t own it - you do. You still will have to negotiate with them a price to bake it for you custom order - and they can refuse to make it, they’re not obligated to - but you own the recipe, so you can take it to ANY bakery to get it made just for you. Or you can make it at home!
Making sense yet?
Private Label or Custom Formula?
Custom Formula (You own the formula - and you have a contract that states it):
All skincare labs are different with the way they choose to write up and enforce their contracts. The distinction between private label and custom formula is important in the context of switching manufacturers because all companies that offer private label skincare own the private label formula and its intellectual rights.
If your product has already been custom formulated - and you have a piece of paper that clearly states that you own it outright - this could be good news when looking to switch skin care manufacturers. If you own the custom formula and its intellectual rights then you can simply look for a new manufacturer that meets your needs and the manufacturer will be able to create the exact same formula your customers know and love!
You will need to provide them with the ingredients (Trade names, INCI), percentages by weight and mixing instructions (as well as other chemical properties of the finished formula) but you have the right to shop around!
BEWARE OF “FREE” R&D WORK
Some skincare labs, however, offer “custom formulating” services, but still retain rights to ownership of the formula. This can happen if they “fix” a formula for you for no cost or “create something custom” for you as part of a manufacturing purchase order. You don’t own it. They trapped you with free work.
This is why it is important to review a contract before you custom formulate any cosmetic product, because if the lab owns your formula, this makes it much more difficult to change labs after the formulation is complete. If the lab owns the formula you currently market and sell, refer to the private label section of this blog for possible next steps to switching skincare labs.
Private Label (The Lab you currently work with owns the formula, always has and always will):
With private label skincare, the lab you work with owns the private label formula and its intellectual rights. This is why private labeling complicates the process of switching labs quite a bit. In a situation where you are currently private labeling with a lab that it is no longer possible to do business with, you may want to look into reverse formulation, however this can turn into a sticky legal situation.
As long as the lab owns the formula you will not legally be allowed to sell the exact same formula, even if you formulated it yourself. There will need to be a significant difference in the actual formula for you to continue legally selling your product.
Option 1: “Reverse Formulate” with A “Significant Difference”
A “significant difference” in cosmetic formulation can mean a few different things. It is possible for a formulation to be extremely similar on paper, meaning the same ingredients with slightly different concentrations of each, but have a completely different feel and effect when used. It is also possible to have a very different formulation, meaning different active ingredients, with the same feel and effect when applied.
These two different types of reverse formulation are most commonly legal and safe, however it is always important to consult with a lawyer before moving forward on a reverse formulation. Due to the legal complications, not every cosmetic chemist will be willing to take on the risk of reverse formulation, so it is important to communicate with your new chemist exactly what you are looking for before starting a formulation process.
In order to formulate a new product you will need to set your cost and time expectations at a reasonable level for the service you are requesting. Custom formulation can take anywhere from 4-9 months to formulate a new product and the process can be costly depending on what the product is. This is because you are creating a whole new formula that has to comply with market regulations.
An Example:
You are looking to formulate a CBD mascara, there are multiple tests the product will have to pass before bringing it to market. First the formula must be stable, meaning the ingredients don’t separate while the product is sitting on store shelves or at customers’ homes. The formula will also need to pass ocular and CBD testing. These tests ensure that your product will not do any serious harm when used as directed and will help keep you and your company out of legal trouble while selling the product.
For all of the aforementioned reasons, you will need to start the process of transferring labs, if you want to reverse formulate, about a year before you plan on making the full switch. To ensure a steady flow of product, we recommend placing a large final order with your current lab before breaking off the client-business relationship. It's a big decision to break away from a lab that owns your formula, however if you feel that you and your customers will be happier with switching it will be better for yourself and your brand in the long run. Before leaving be sure to read the next section regarding non-circumvention contracts to ensure you are able to legally transfer labs with no strings attached!
Option 2: Choose a New Lab and New Formula:
If you feel you don't have the time and/or money to formulate a new product there is always the option to cut your losses and start marketing and selling a new product. With this avenue, you will have a much smaller risk of running into legal implications when you leave your current skincare lab because you will not be attempting to sell an extremely similar formula to the one your current lab already owns.
The skincare industry, like most other industries, is ever changing. With new trends coming and going there is always an opportunity to jump in on a new type of innovative or a classic skincare product. At Genie Supply we focus on producing new and innovative private label and custom formulated formulas. We keep our classic skincare products available for private label as well.
Check out all of our private label skincare here! Whether you choose to private label with us for a different lab, switching skin care products is not a completely bad business decision and could even benefit you and your company in the long run especially if you are unsatisfied with your current lab/manufacturer or they go out of business.
Have you Unknowingly Signed a Non-Circumvention Agreement?
As previously mentioned, it is extremely important to review all contracts you agree to in regards to your business before signing them. An important type of agreement to look out for is a non-circumvention agreement. Essentially a non-circumvention agreement indicates that a company selling a product that another company has intellectual rights to will not profit off the product without compensating the company that owns that product.
A non-circumvention agreement could also indicate that a company will not make profits without compensating their mother company (i.e. your current lab). If you have signed a non-circumvention agreement, this can solidify your current lab’s legal standing in terms of their ability to legal action against you if you choose to reverse formulate.
Since non-circumvention agreements usually contain a section saying you will not profit off of the lab’s formula without fair compensation, it may not be in your best interest to reverse formulate the current formula you are using. Not only does this pose a risk to your company, ut it can also pose a risk to the chemist who works on the project with you. Once again, if you are going to try and reverse formulate, it is a good idea to be clear with the details of your product with your new chemist.
If the chemist is up for the challenge, there are a few ways to get around a non-circumvention agreement such as making the concentrations of the ingredients in the new formula “significantly different” than the original, or using different active ingredients with the same effects to reach the same result. The new chemist you choose should be able to offer some insight on how to make your new formula “significantly different” than your previous formula.
But, they may not want to accept the challenge if it could tie them up in court, defending their choices. It all depends on how much is at stake!
In the case of a non-circumvention agreement, we would highly recommend discussing your plan with a lawyer or other legal professional before making any permanent decisions.
Switch Skincare Labs and Start Working With Genie Supply:
Genie Supply would be a great skincare lab to start working with if you are looking to change labs and start working with an understanding and helpful team! From the diversity of our team to the care we show our customers and their companies, we work hard to satisfy our clients. If you are looking to switch skincare labs, but don’t like the sound of the costs of doing so, contact Genie Supply and we may be able to help!
We want you to have a good experience with your lab, and to be able to build a long lasting relationship with it. We work hard to build meaningful relationships with all of our clients - relationships built on transparency and trust.
Based on your particular situation we may be willing compensate the cost of research and development with an agreement to manufacture your product with us. Reach out via email or phone call to see if you and your company are eligible for this promotion!
Extra questions? Email us at customerservice@geniesupply.com or give us a call at 812-329-1105.
