Does my cosmetic manufacturer own my formula?

In most cases, yes—unless your contract explicitly states otherwise. The default in contract manufacturing is that the manufacturer retains IP ownership and grants you a license to use the formula. If you paid for development but didn't negotiate IP transfer, you likely own the right to sell products but not the formula itself. Request your formula documentation; if they won't provide it, they own the IP.

What is work for hire in cosmetic manufacturing?

Work for hire is a legal arrangement where the intellectual property created by a contractor belongs to the client who commissioned it. In cosmetic manufacturing, a work-for-hire clause means any formulas developed for you are your property from the start. Without this clause, the default is that the creator (the manufacturer) owns the IP. Always look for explicit work-for-hire or IP assignment language in your contract.

How do I protect my skincare formula from being copied?

The best protection is owning your formula outright with clear contractual language. Beyond that: (1) use NDAs with anyone who accesses your formula, (2) consider whether any elements are patentable (rare for cosmetics, but possible), (3) treat your formula as a trade secret with appropriate confidentiality measures, and (4) work only with manufacturers who have strong confidentiality policies.

Can a lab sell my formula to competitors?

If the lab owns the formula IP, potentially yes—unless your contract includes exclusivity provisions. Even with exclusive use language, read carefully: exclusivity might be limited by time, geography, or product category. The only certain protection is owning the IP yourself, which gives you legal recourse if anyone uses your formula without permission.

How much does it cost to buy formula IP from a manufacturer?

Buyout costs vary widely: $5,000-15,000 for simple formulas, $15,000-40,000 for complex ones, and $40,000-80,000+ for high-value hero products. Some manufacturers offer volume-based buyouts (e.g., IP transfers after 50,000 units). If a manufacturer won't sell at any price, your options are developing a new formula or having a chemist create something substantially different.

Who Owns Your Cosmetic Formula? The IP Clause You Must Check Before Signing

The IP Clause Every Founder Needs to Check Before Signing

Here's a scenario that plays out every week in the beauty industry:

A founder spends months working with a contract manufacturer. They pay for development. They approve samples. They invest in their first production run. The product launches, gains traction, and starts selling.

Then they want to switch manufacturers. Or negotiate better pricing. Or sell their company.

And they discover the truth: They don't own their formula.

The manufacturer does. And now that manufacturer has leverage over every future decision.

This isn't a rare horror story. According to industry estimates, most small to mid-sized beauty brands do not own their formulas. They're building businesses on intellectual property they don't control.

If you're working with (or about to work with) a contract manufacturer, this guide will show you exactly what to look for—and what to demand—before you sign anything.

The Dirty Secret of Contract Manufacturing

Most contract manufacturers operate under what we call the "you can use it, but we own it" model.

Here's how it works:

You pay a manufacturer to develop a formula
They create something great
You pay for production and start selling
You assume you own the formula because you paid for it
You're wrong

Unless your contract explicitly states that intellectual property transfers to you, the manufacturer retains ownership. Your payment bought you the right to use the formula—not the formula itself.

This isn't illegal. It's not even unusual. It's just how most contracts are written by default. And most founders don't know to ask.

What "Ownership" Actually Means

Let's be precise about what formula ownership includes:

If You Own Your Formula, You Have:

Complete ingredient list (INCI names and trade names)
Exact percentages by weight for all ingredients
Batch procedure (manufacturing instructions)
The right to manufacture anywhere with any partner
The right to modify the formula without permission
The right to sell or license the formula to others
An asset on your balance sheet that increases company valuation

If You Don't Own Your Formula, You Have:

A license to sell products made from that formula
Dependency on one manufacturer
No documentation you can take elsewhere
No leverage in pricing negotiations
No transferable asset if you sell your company
Risk if your manufacturer goes out of business, raises prices, or decides to sell your formula to a competitor

The difference between these two scenarios is often a single paragraph in a contract.

The Contract Language That Steals Your IP

Here are the exact phrases to search for in any manufacturing agreement:

Red Flag Phrases:

"License" or "Licensed"

"Manufacturer grants Client a license to use the formula..."

Translation: You're renting, not owning.

"Exclusive right to use"

"Client has the exclusive right to use the formula for products sold under Client's brand..."

Translation: Sounds good, but "right to use" does not equal ownership. The manufacturer still owns the IP.

"Formula remains the property of"

"All formulas developed under this agreement remain the property of Manufacturer..."

Translation: Couldn't be clearer. They own it.

"Proprietary formulations"

"Manufacturer's proprietary formulations may not be disclosed, transferred, or reproduced..."

Translation: They own it, and you can't even try to recreate it elsewhere.

Green Flag Phrases:

"Work for hire" or "Work made for hire"

"All formulas developed under this agreement shall be considered work made for hire and shall be the sole property of Client..."

Translation: You own it.

"Assignment of IP"

"Manufacturer hereby assigns all intellectual property rights in the formula to Client..."

Translation: You own it.

"Transfer of ownership upon payment"

"Upon final payment, all intellectual property rights transfer to Client..."

Translation: You own it (once you've paid in full).

The 5 Questions to Ask Before Signing

Before you sign any contract with a formulator or contract manufacturer, get clear answers to these questions:

1. "Who owns the formula IP after development is complete?"

Acceptable answers:

"You do, once you've paid for development"
"You do—it's a work-for-hire arrangement"
"You do—we'll provide full documentation"

Unacceptable answers:

"We retain ownership, but you have exclusive use"
"It depends on the volume you commit to"
"We can discuss that later"

2. "Will I receive complete formula documentation?"

What you need:

Full INCI list with trade names
Exact percentages by weight
Batch procedure / manufacturing instructions
Raw material supplier information (ideally)

If they won't provide this, you don't own the formula—regardless of what the contract says.

3. "Can I take this formula to another manufacturer?"

The only acceptable answer: "Yes, you own it, so you can manufacture it anywhere."

If they hesitate, add conditions, or say "that would violate our agreement," you're looking at a license, not ownership.

4. "What happens if you go out of business?"

This question reveals a lot. If you own your formula, their business status doesn't matter—you have documentation and can produce elsewhere.

5. "Can I see a sample contract before we proceed?"

Any reputable manufacturer should provide their standard agreement for review. If they won't show you the contract until you're ready to sign, that's a red flag.

What If You've Already Signed a Bad Contract?

If you're already working with a manufacturer who owns your formula, you have options:

Option 1: Negotiate a Buyout

Many manufacturers will sell you the IP for a price. Expect to pay $5,000-15,000 for simple formulas, $15,000-40,000 for complex formulas, and $40,000-80,000+ for high-value products.

Option 2: Negotiate Better Terms on Renewal

If your contract is coming up for renewal, use it as leverage. Make IP ownership a condition of continuing the relationship.

Option 3: Develop New Formulas With Clear Ownership

Keep your existing products with your current manufacturer, but develop new products with a partner who offers clear IP ownership.

Option 4: Start Fresh

If your current products aren't performing well anyway, it might be cleaner to develop entirely new formulas that you own outright.

Why This Matters for Your Business Value

Formula ownership isn't just about control—it's about valuation.

When investors evaluate a beauty brand, one of the first questions they ask is: "Do you own your formulas?"

With Formula Ownership:

Your formulas are assets on your balance sheet
You can switch manufacturers for better pricing or quality
Acquirers pay a premium for owned IP
Your business has defensible value independent of any single partner

Without Formula Ownership:

Your "brand" is essentially a marketing wrapper around someone else's product
You're locked into one manufacturer with no leverage
Your valuation takes a significant hit (often 20-40% lower)

As one industry insider put it: "We're all talking to private equity... and the first thing they ask is, 'Do you own your formulas?'"

The Genie Approach: You Own Everything

We built Genie specifically to solve this problem.

At Genie, you own your formula. Period.

Every formulation generated through our platform—whether you use our AI or work with our chemist network—is 100% your intellectual property. No licenses. No buyouts. No exceptions.

Full documentation from day one: Complete INCI list, exact percentages, batch procedures
Manufacture anywhere: Take your formula to any qualified manufacturer
No lock-in: If you want to leave Genie, you take your formula with you
Investor-ready: Your formulas are assets you can point to on your balance sheet

We earn your business by being better—not by holding your IP hostage.

Check Your Contracts Today

If you're already working with a contract manufacturer, pull out your agreement and search for the phrases we listed above. Know what you own—and what you don't.

If you're about to sign a new contract, make IP ownership a non-negotiable requirement.

Start Building With Full IP Ownership

Who Owns Your Formula? The IP Clause Every Founder Needs to Check Before Signing