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The secret code of tailored skincare

August 2021

Recently, there has been news in the press that an international skin care company was suspected of copying ideas regarding personalised cosmetics from a young startup it held talks with regarding financing. Instead of investing in the startup, a few weeks later the global player released its own personalised cosmetics product line.

Consumers are more and more aware of the ingredients used in cosmetics and wish for them to not only be natural and climate-friendly, but also tailored to the needs of their skin and body.

In addition to that and accelerated by the special demand of digital solutions in times of the pandemic, the benefits of new technologies such as the use of big data, artificial intelligence and virtual reality have entered the business of cosmetics and skincare.

While startups and traditional beauty and skincare companies alike are focusing on that trend, it is always crucial to protect the core assets in this competition, namely the intellectual property (IP) of the company.

1. New products and new distribution channels

The increasing demand in bespoke cosmetics and skincare may be met through several ways.

Meeting the customer in person and advising them according to the special needs of their skin at a pharmacy – or – particularly in these times of social distancing – over the internet with special websites adapted for that very purpose and utilising techniques such as virtual reality and artificial intelligence.

The skin is analysed, products may be tried using virtual reality, or algorithms are used to calculate the formula required to fulfil the needs of the individual’s skin.

The new need for the industry to create products that reflect the personalities of their customers is even increased through inclusivity following the Black Lives Matter movement. Skincare is offered in a diversity of colours and shades now to address customers who had previously been underrepresented[1].

More and more fastidious consumers demand products with transparent ingredients that are e.g. ethically sourced or natural. The carbon footprint of the products or whether the ingredients are vegan may also be a decisive argument for an increasing number of customers.

Companies are thus activating their customers through questionnaires. Analysis of search terms and spending habits feed big data which is then used to adapt the products precisely to the needs of their customers.

All these new trends have one thing in common: they are based on a lot of know-how and innovation.

Accordingly, IP is a crucial asset – irrespective of the size and standing of the company.

2. IP as an asset

However, while established companies turn to new technologies, there is currently what has been said to be an “almost eerie” row of new startups[2] in the area of cosmetics employing new technologies and competing for the attention of the customers.

In this competitive market situation, only established beauty companies have the option to choose whether to develop new products based on their experience and know-how to quench the market’s thirst or rather to finance or even buy a startup which devoted itself to this very purpose.

This shows that IP rights protecting the know-how and innovation of a company are a unique selling point, especially for startups requiring aid in financing.

In addition to that, studies[3] have shown that companies owning IP rights have a 20% higher revenue per employee than those without IP rights.

3. Building the asset – protect your IP

Thinking of IP rights is a must – from the very start to the launch of a company and beyond. Having an IP strategy helps to lay the foundation for the company.

It is true that a lot of regulations must be observed in the beauty and cosmetics industry. From product safety to legal provisions about labelling. However, IP rights are equally important and – as mentioned – a purchasing argument for investors.

During the development process of new products and services, it is vital to prevent approximating the competitor’s ideas or even infringing third party rights, which will harm the company in the end through confused consumers or even costly litigation proceedings.

In addition to that, it is equally vital to secure the company’s own know-how through diligent documentation and early protection of IP rights.

In this context it is important to know about the existence of the basic principle of freedom to copy. An idea that is published and is not subject to contracts such as non-disclosure agreements or protected by any form of IP right, may be copied freely by anyone.

However, there are tools to record the know-how and the date of its development.

WIPO for example offers a service called “WIPO PROOF” which enables its users to create a date- and time-stamped digital fingerprint of any file in order to prove the existence of that digital file at a specific point in time[4].

Although founders are left to “do-it-yourself” techniques in the very beginning due to lack of financing, it is very advisable to enlist guidance from an IP counsel. It is not easy to decide which of the core business know-how to protect through what IP right and to define the exact scope of these rights cost-effectively.

Different institutions have established funds in order to support small and medium sized entities (SMPs) in protecting their IP in recent times – there is the EUIPO’s Ideas Powered for Business SME Fund[5] which reimburses eligible European enterprises with 50% of the application fees of an EU or national trade mark.

A natural part of a well-defined IP strategy are non-disclosure agreements, not only with the startup’s own employees and especially contractors, but also with participants of financing rounds and prospective investors.

In addition to that and as important as the quick launch of the startup’s new product or service is the protection of IP. Having no IP protection in place before the product is placed on the market can even destroy the possibility to acquire IP protection. Once information is published it may even be impossible to secure any kind of IP right subsequently.

And the international skin care company that was mentioned in the beginning? It was reported that its CEO is to step down soon – maybe it is time for some innovation now.

[1] https://nielseniq.com/global/en/insights/analysis/2021/multicultural-consumers-are-set-to-drive-beauty-growth-amid-continued-category-shifts-in-2021/

[2] https://www.deutsche-startups.de/2020/10/21/boom-beauty-startups/

[3] https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/IPContributionStudy/IPR_firm_performance_in_EU/2021_IP_Rights_and_firm_performance_in_the_EU_en.pdf

[4] https://wipoproof.wipo.int/wdts/

[5] https://euipo.europa.eu/ohimportal/en/online-services/sme-fund

This article was prepared by HGF Attorney-at-Law Olivia Petter.

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