The cosmetics industry in Spain is a clear example of innovation and competition. According to the Spanish Cosmetics, Toiletries and Perfumery Association (STANPA), Spain generates around 36% of the industry’s European patents. Companies in this field invest between 3.4% and 5% of their turnover in R+D+i, a percentage that is well above that of other industries such as the automotive (2.4%), chemical (1.1%) or food industries (0.5%).
But how do these companies protect their innovative products? Inventions are protected through the patents and utility models system, or as trade secrets. Each has its pros and cons. It is even possible and often occurs, that they are both used to protect different aspects of the technology present in a cosmetic product.
Trade secrets protect secret information such as a forumula or a manufacturing method, which has a real or potential value for its owner because it is secret and in relation to which reasonable measures have been taken to keep it secret. If the owner meets these requirements it will have a de facto monopoly that will last indefinitely until the secret stops being secret.
The patents and utility models system on the other hand involves the need to disclose the invention. In exchange, if the substantive patentability requirements are met (novelty, inventive step and industrial application), patent offices will grant a patent or utility model, as the case may be, which gives the owner a legal monopoly to exploit the invention for a limited period (in most countries 20 years in the case of patents and 10 years in the case of utility models, as from the application date).
Until the 60s the majority of companies in Spain protected their innovative cosmetics through trade secrets. However, the cultural change since then has been huge and we are witnessing increasingly more patent applications in this industry.
What are the advantages and disadvantages of this type of protection?
The main advantage of trade secrets is that the monopoly is not limited in time but lasts indefinitely, while the secret is not revealed. Since it is a non-registered right it does not involve registration expenses. The main disadvantage as compared with the patents systems, is that trade secrets do not protect independent development. This means that if another person arrives legally at the same invention, whether by chance or reverse engineering (provided that it is not contractually prohibited), for example by analyzing the ingredients of the cosmetic after it has been launched on the market, he/she cannot be prohibited from also exploiting it. Therefore, if it is not possible to arrive at the invention through reverseengineering and there is no reason to believe that competitors are developing something similar, it is an interesting alternative means of protection.
Patents and utility models do provide protection from subsequent independent developments, since the monopoly to exploit the invention is only granted to the first person to apply for the right. Therefore, if there are reasons to believe that competitors are developing very similar inventions, or it is possible to arrive at the invention through reverse engineering, the best option is to get there first and protect the invention through a patent or utility model. Moreover, a portfolio of patents and utility models helps to create a good corporate image. Finally, it should also be taken into account that by assigning or licensing a patent or utility model it is possible to claim certain tax benefits, provided that other requirements established in Corporate Income Tax Law 27/2014 of November 27, 2014 are met (we are referring to the regime known as patent box, regulated in article 23 of said law).
The main disadvantage as compared with protection for trade secrets lies in its limited duration and the risk of disclosing an invention which is finally not granted protection. Applications are published, which implies automatically waiving protection through a trade secret and if the patent or utility model is finally refused registration, it is no longer possible to protect the technology in any of these ways.
Can these rights be licensed?
Yes, both secrets as well as patents and utility models can be licensed to third parties. Although Trade Secrets Law 1/2019, of February 20, 2019, envisages this possibility expressly, many companies are still reluctant to do so for fear of the secret coming to light and not having effective tools to stop the infringement and claim the damages sustained. It is worth stressing that the new Trade Secrets Law has given owners more effective tools to fight the unlawful acquisition, use and disclosure of secrets. However, the success of any lawsuit will largely depend on the measures that the owner of the secret put in place before the infringement to protect the confidential information. It is therefore highly advisable for companies to include adequate confidentiality clauses in their contracts with employees, executives and collaborators, to implement effective cybersecurity measures, to document the inventive processes correctly and to provide confidentiality training to their employees.