When a cosmetics brand develops a product with an OEM/ODM manufacturer, there is an important issue to clarify in advance beyond the product’s ingredients, texture, and packaging: who has the right to use the resulting cosmetic formula and to what extent.
Paying a development fee does not automatically give the brand all rights to the formula. Conversely, the fact that the formula was developed by the manufacturer does not necessarily mean that the brand’s right to use it is limited.
Rights related to a formula are not determined solely by whether a project is classified as OEM or ODM. They may vary depending on who owns the pre-existing formula, how the product was actually developed, the manufacturer’s technology and know-how, and the terms of the contract.
How the Formula Was Developed Matters
When reviewing the rights related to a formula, it is important to consider not only whether the project is OEM or ODM but also how the product was actually developed. Development methods can vary: a brand may provide an existing formula, a manufacturer may use one of its own formulas, or the parties may develop an entirely new formula.
① Manufacturing Based on a Brand-Owned Formula
In this arrangement, the brand provides the manufacturer with a formula it already owns for production. Outsourcing the manufacturing process does not automatically transfer the brand’s pre-existing rights in the formula to the manufacturer.
② Using a Manufacturer-Owned Formula
The manufacturer may use a formula it already owns without modification or adjust the ingredients, fragrance, viscosity, or sensory feel to meet the brand’s requirements. In this case, the manufacturer’s pre-existing formula and related technology and know-how may not be automatically transferred to the brand.
③ Developing a New Formula Based on the Brand’s Requirements
The brand may propose its desired product type, texture, or sensory feel, and the manufacturer may develop a new formula to meet those requirements.
The fact that the brand set the development direction or paid a separate development fee does not necessarily mean that all rights to the final formula automatically belong to the brand. The rights to the newly developed results and the permitted scope of use should be reviewed based on the actual development process and the terms of the contract.
④ Joint Development by the Brand and Manufacturer
The brand and manufacturer may also develop a product together using technology or information that each party already owns. In this case, it is important to distinguish each party’s pre-existing technology from the newly developed results and clarify the rights and permitted scope of use through the contract.
Therefore, when beginning formula development, brands should distinguish pre-existing technology from newly developed elements and confirm the extent to which each party may use the final development results.
Formula Ownership and the Right to Sell the Product Are Different
The fact that a brand does not own the formula itself does not mean that it cannot manufacture and sell the product under its own brand.
Under an ODM arrangement, the manufacturer may retain ownership of the formula or related technology, while the brand may manufacture and sell products using that formula under the agreed terms.
Therefore, rather than reviewing formula ownership alone, it is important to confirm the conditions under which and the extent to which the brand may use the formula.
Can the Same Formula Be Used After Changing Manufacturers?
Brands planning to manage a product over the long term should also consider the possibility of changing manufacturers.
Even if a brand wants to transfer a product from its current manufacturer to another manufacturer, it may not be possible to transfer the exact same product without modification. This will depend on the rights to the formula and technical documentation, as well as the terms of the contract.
Knowing the product’s full ingredient list does not mean that the same formula can be reproduced exactly. Actual manufacturing may be affected not only by the precise proportions of each ingredient but also by raw material specifications, the order in which ingredients are added, temperature, processing time, mixing conditions, and other manufacturing information and know-how.
Therefore, if a brand may change its manufacturing partner or use multiple manufacturers in the future, it is advisable to confirm from the early stages of development whether the formula can be transferred and what technical documentation can be provided.
What Should Be Reviewed in the Contract Before Development Begins?
When beginning an OEM/ODM cosmetics development project, it is important to review not only the MOQ, unit price, and schedule but also the rights related to the development results.
The following points should be reviewed during the contracting stage:
- Rights related to pre-existing formulas and newly developed results
- The scope of the brand’s right to use the formula
- Whether the use is exclusive and the scope of any exclusivity
- The scope of technical documentation to be provided
- Whether the formula and technical documentation can be transferred when changing manufacturers
- Conditions for using the formula after the contract ends
Specific terms may vary by manufacturer and project. Therefore, it is important not to determine the rights to a formula based solely on whether the project is described as OEM or ODM, but to review the actual terms of the contract carefully.
Formula Development Also Requires Clarifying the Rights Involved
A cosmetic formula is an important factor in a brand’s product competitiveness.
However, developing a product through OEM/ODM does not automatically mean that all rights to the formula belong to one party. The extent to which the brand may use the formula can vary depending on who owns the pre-existing formula, the scope of the new development, the manufacturer’s technology and know-how, exclusivity terms, and the terms of the contract.
This is particularly important for brands planning to manage a product over the long term, change manufacturing partners, or expand into international markets. From the early stages of development, brands should confirm who holds the rights to the formula and the extent to which the brand may use it.
Neo Mirae supports the cosmetic product development process from formula development through production, based on each brand’s product concept and development direction. Turn your brand’s ideas into successful products with Neo Mirae.
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