Cosmetics in the US: What Israeli Companies Need to Know

As long as the search for the fountain of youth continues, so will the search for the new and improved cosmetics products and solutions. Israeli cosmetics companies are renowned for their innovative formulas, Dead Sea sourced minerals, and recently, CBD cannabidiol-based cosmetic products as well.  According to Market Research Engine, the global cosmetics market is expected to exceed more than $390 billion by 2024.  With the cosmetics market in North America accounting for approximately 24% of the global market, it is not surprising that many of the leading Israeli cosmetics companies are finding their way into the US market.

Israeli companies manufacturing, importing, distributing or selling cosmetics in the US should, however be aware of a number of legal challenges that are unique to that industry. With appropriate legal and regulatory guidance, such challenges can be addressed in advance to minimize potential disruption and reduce the risk of incurring costs to address problems after they manifest.

1. What is Cosmetics? It is important to note that the definition of “cosmetics” under US law is rather broad. Most people associate “cosmetics” with makeup and beauty items used primarily by women, such as lipstick, mascara, foundation, concealers, blush, wrinkle creams and maybe perfume. However, it also includes moisturizers, deodorants, most shampoos, most body washes and body bars, some mouthwashes and toothpastes, plus any substance intended for use as a component of a cosmetic product.
2. Cosmetic or a Drug?: Cosmetics products are regulated under the US federal Food, Drug, and Cosmetic Act (FD&C Act) and administered by the US Food and Drug Administration (FDA). One of the key questions regarding cosmetics products is whether they should be treated as a cosmetic or a drug.

• What may seem to be minor differences in language on a product’s label can have a profound effect on how it is regulated under US law. Drugs are regulated far more heavily than cosmetics. Cosmetics as a whole are not subject to FDA’s premarket approval, various registration requirements, certain labeling and disclosure obligations, and other rules that apply to drugs.

  Let’s take lipstick for example. Under the definition of “cosmetic,” it can be easily determined that lipstick is plainly a cosmetic. However, once a manufacturer labels its lipstick as one that “prevents chapping and heals cracked lips,” it has turned the product into a drug, because it is now intended to affect the structure or function of the human body– which is one of the definitions of a drug under FD&C Act. This example illustrates the importance of a product’s intended use. How is intended use determined? The first place that the FDA will look is the label, but advertisements and promotional literature, including on a website, will not escape FDA scrutiny.

Embed from Getty Images

• The choice of ingredients can make cosmetics products drugs too, even if no claim is made on the label that they cure or prevent disease, or affect the structure or function of the body. That is because any product containing an ingredient recognized as a drug is itself a drug. For shampoo for example, the antidandruff ingredients selenium sulfide and zinc pyrithione are each considered drugs.

  This means that any shampoo containing each of them is automatically a drug, even if it is not labeled as an antidandruff shampoo. For toothpaste, any form of fluoride is considered a drug, and hence all fluoride-containing toothpastes are automatically drugs even if they are labeled as helping to prevent cavities.

3. Patents: Cosmetics present fewer patent problems than pharmaceuticals but more than most other consumer products. Unlike pharmaceuticals, where most US consumers will happily accept a generic product in order to save money, the acceptability of cosmetics is heavily driven by brand reputation and consciousness. Although patent infringement cases between two large and established cosmetics companies occur from time to time, they are not very common. Litigation is more likely in the case of a smaller company, or one that is entering a new field, that tries to carve out an exclusive space with its patents to prevent encroachment by larger competitors.

   Conducting a focused search of patents and applications, supervised by a qualified attorney, is often advisable to prevent the situation in which substantial investments are made in bringing to market a product that infringes a competitor’s patent when the opportunity existed to avoid the patent by making minor changes that would not have compromised the potential product’s appeal.

4. Trade Secrets. Trade secrets have an outsized role in the cosmetics industry because the details and specifics of formulations often cannot be determined from the label’s listing of ingredients. Accordingly, cosmetic formulations are commonly considered by their manufacturers to be trade secrets. A key aspect of maintaining information as a trade secret is taking steps to guard against disclosure.. Trade secret information should be shared within the company on a need-to-know basis, and should not be disclosed outside the company (for example, to a consultant, contract manufacturer or testing laboratory) absent a suitable nondisclosure agreement. Companies should also be sensitive to reducing the risk of being on the receiving end of a trade secret claim from the former employer of a new hire and seek legal advice on the appropriate hiring practices.

5. Trade Dress. Trade dress refers to the appearance of a product – typically, in the case of cosmetics, the packaging – that serves as an indicator of the product’s source. It is similar to a trademark, but more about the overall visual appearance of a product and not a particular name or logo. Companies working on product design should also note that the use of a similar design scheme in a consistent manner across a range of products can create trade dress rights that could be asserted against a future competitor that attempts to ride on the company’s good will and brand reputation by using a similar scheme on its own products.

We all want to retain and maintain a youthful radiant look. One of the major drivers of the growing cosmetics market is the aging population. And finding that one special cream across continents is no longer a challenge with robust readily available e-commerce distribution channels. Israel, as a global hub of innovative research and development, is well-positioned for continued growth in the cosmetics industry.  At the same time, Isareli companies seeking to launch sales in the US, should make sure they are well aware and in compliance with the US regulatory requirements.