Legal challenges facing cosmetics brands and how to avoid them

*As first appeared in Cosmetics Business Magazine

The UK cosmetics and beauty industry is thriving and there are huge opportunities for both well-established and early stage brands. Those that have embraced social media and the explosion in online shopping are reaping the rewards. New technology has enabled companies to use post-production techniques to show off state of the art cosmetics advertised by celebrity influencers in a way that has never been seen before.

However with opportunities come challenges. As boundaries are pushed, it is not long before regulators catch up. For example, the Advertising Standards Agency (ASA), the UK advertising regulator, has seen a proliferation of complaints that cosmetics advertisements are misleading, and there has been an increasing temptation for some companies to push cosmetic products onto the market with accompanying efficacy claims which are simply incapable of substantiation. So the savvy brands must continue to innovate but know the boundaries within which they must operate.

This article will look at some of the legal challenges facing cosmetics brands promoting their products but of course, compliance with advertising regulations is only one of the legal challenges faced by cosmetics brands today. For those brands selling through third party distributors there has been an increasing focus on what controls a brand can impose on its distributors. Likewise, those brands selling direct to retailers face the challenge of ensuring they are not impacted when, not if, the next retailer becomes insolvent.

This article touches on a number of these legal challenges, based on experience gained advising both domestic and international cosmetic brands, and looks at how the risks might be reduced or managed.  

What is a cosmetics product?

Many of the regulations affecting UK cosmetics originate from European legislation, so when establishing what is meant by "cosmetics" it is worth looking at the legal definition adopted by European legislation, which is "any substance or mixture intended to be placed in contact with the external parts of the human body or with the teeth and the mucous membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting them, keeping them in good condition or correcting body odours".

A wide definition but crucially, it does not include medicinal products nor medical devices which are, therefore, outside the scope of this article.

Safety first

Product safety is the most important issue for any cosmetics brand. Consumers of cosmetic and personal care products are protected by strong safety requirements laid down in cosmetics legislation.

A brand has a legal responsibility to ensure that its products are safe for consumers to use. Getting this wrong can have dire consequences as illustrated in recent weeks as Johnson & Johnson continues to fight the $4.7bn (£3.6bn) in damages that it was ordered to 22 women in the US who alleged that its talc products caused them to develop ovarian cancer.  

Cosmetics product safety laws in the UK are largely derived from European law in the form of EU Regulation (EC) No 1223/2009. It is an offence to supply a cosmetics product that may cause damage to human health or contains specific restricted or prohibited substances (e.g. alkyne alcohols or antibiotics). A brand must not sell cosmetic products to UK consumers that it knows – or should have known – are unsafe.

A manufacturer of cosmetics products must prepare a product safety report prior to placing a product on the market and notify its products using the EU Cosmetic Products Notification Portal (CPNP). Any cosmetics company wishing to place finished cosmetics products on the UK market must appoint a legal or natural person within the EU (also known as a responsible person) to undertake its regulatory compliance obligations.

In summary, in order to ensure compliance with the Regulations, a cosmetics brand must:

• review each ingredient used in the product to ensure they are compliant;
• manufacture its cosmetics products in accordance with the Good Manufacturing Practices (GMP) set out in the Regulations;
• appoint a responsible person within the EU to undertake regulatory compliance;
• complete a product safety assessment;
• ensure the label is compliant (see below);
• ensure the responsible person notifies each product to the EC before its launch;
• ensure the responsible person prepares and keeps a product information file; and
• comply with the ban on animal testing.

Label it properly

All cosmetic products sold in the UK must comply with EU marking and labelling laws. This includes ensuring the packaging contains:

• the name and address of the responsible person (see above);
• the nominal content at the time of packaging, given by weight or by volume;
• the best before date;
• a list of ingredients (in the approved form);
• and particular precautions/warnings;
• batch number or code; and
• a country of origin, i.e. where the product was manufactured.

Product labelling in the UK is enforced by the Trading Standards office. They have a range of enforcement options available to them including requesting remedial action or even criminal sanctions so it is essential that product labelling is compliant.

Be careful what you claim

The lawful advertising of cosmetics products is one area that brands can often neglect but non-compliance can lead to serious reputational harm.

As mentioned above, the primary regulator of advertising in the UK is the ASA. There are two advertising codes, the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing which governs non-broadcast advertising ("CAP Code") and the UK Code of Broadcast Advertising ("BCAP Code") which applies to all advertising and programme sponsorship on radio and television. Since 2011, the ASA also regulates claims made by cosmetics brands on their own websites and on social media. Consumers, competitors and the ASA itself can investigate non-compliant advertising and, if found to breach the Codes, the brand faces a number of sanctions, including a public online ruling and associated negative publicity as well as an obligation to take down the offending advertisement.

All advertisers must comply with the following key principles:

• making only truthful and legal statements;
• holding substantiation, prior to publication, for any claims made;
• ensuring the advertisement is clearly recognisable as such; and
• not making misleading statements.

It is vital that brands hold appropriate and adequate scientific evidence to substantiate any claim which goes beyond claiming a simple cosmetic effect. For example, the ASA upheld a complaint against an advertisement for “Wrinkle Killer Snake Serum” because of a claim that the product had “temporary freeze-like effects on the face muscles”. The brand went beyond claiming that the product could provide an established temporary moisturising effect (which would have been an acceptable claim) because of the implication that the product could provide a similar effect to injected fillers (and there was no evidence to support this).

Take care with production and retouching techniques

Images can also be misleading, either in their own right or because of the effect they have on the words used in an advertisement. Therefore images must be carefully vetted to ensure any implied effects do not exaggerate what the product can realistically achieve. This is particularly true when it comes to retouching. In case the ASA begins an investigation, brands should retain appropriate material so that they can demonstrate whether any retouching has been carried out. In the absence of such evidence, a brand risks breaching the ASA's rules on misleading advertising and exaggeration. For example, the ASA considered that the claims “skin looks smoother” and “complexion looks more even” used in an advertisement for a moisturiser featuring Rachel Weisz were misleading as the accompanying image had been substantially altered thereby exaggerating the implied performance of the product.

Particular care is required when using "before and after" photographs to provide a visual representation of the effectiveness of a product. Such photographs must not mislead consumers by exaggerating the effect the product.

Avoid making medicinal claims

A medicinal claim is an advertising claim that implies that a product can treat or prevent a disease including an injury, ailment or adverse condition. Brands must absolutely avoid making medicinal claims for cosmetic products as such claims can only be made if the product has been licensed by the MHRA. Without such a licence, brands should not use expressions such as "cure", "heal" or "clinically proven".

For example, in 2018 the ASA published several rulings regarding ads for acne and/or spot treatments and products. The ASA considered that claims such as “works to treat, clear and prevent adult acne” and “fighting breakouts… visibly reduce spot size and redness” were unauthorised medicinal claims because they were used in relation to products that were not licensed by MHRA. As a result, the brands were required to cease using the advertisements in their current form.
 
Ensure influencers comply with the rules

Influencers are a powerful marketing tool and cosmetics brands have been early adopters to harness the power of influencer marketing. Influencers (or digital talent) can bring products to life, and help to create a link between social media and ecommerce. However, unlike online marketing, where it took a decade for the regulators to come to grips with policing online advertising, the regulators have been quick to regulate and police the use of influencers. Therefore it is vital for the credibility of a brand to ensure that influencers correctly comply with rules in relation to transparency so that consumers can readily identify where a commercial relationship exists between the influencer and the brand.

Both the ASA and the Competition and Markets Authority ("CMA") have published guidance to ensure transparency. In short, consumers must always be aware when they are being advertised to. If an influencer is paid by a brand to comment on the brand's cosmetics products, that commercial relationship must be made clear upfront to the consumer.

Brands should also be careful when using endorsements to support their claims, especially when a brand markets a cosmetic product under the same brand name but in different markets. For example, it might be necessary to change the formulation of a US product before it can be sold on the UK market, such as reducing the level of salicylic acid in a skin cream. The brand will not be able to use its existing US endorsements to promote the product in the UK for the simple fact that the US endorser has not used the UK formulation.

Protection from high street woes

The cosmetic industry is not immune to the difficulties faced by high street retailers. Any brand supplying cosmetics products direct to a high street retailer faces the challenge of ensuring it is protected should that retailer become insolvent. Aside from maintaining tight credit control, brands should review their terms of supply to ensure they have proper retention of title clauses and that title to cosmetics products supplied to a retailer does not pass to the retailer until the stick has been paid for in full.

The increase in retailer insolvencies during 2018 caused the UK Government to publish plans to provide greater protection to insolvent companies. Most notably, the plans include a prohibition on suppliers terminating contracts solely because a company enters an insolvency process. Without such a right the brand will be required to continue supplying the retailer, despite the increased risk of non-payment. Although it will be a few years before these measures become law, it is likely that the new laws, when passed, will apply to existing agreements. Therefore if a cosmetics brand proposes to enter into any long term supply agreements with retailers it should ensure that it has alternative remedies. Specifically, a brand can retain the right to terminate a supply contract on any other ground permitted by the contract, such as:

• non-payment of liabilities (e.g. invoices) incurred following entry into a moratorium, restructuring plan, or insolvency procedure;
• giving notice in accordance with other terms of the contract (e.g. a principal's right to terminate upon giving fixed notice); or
• any other ground that gives rise to termination (e.g. a breach of contract by the buyer), save for those connected with the financial position of the debtor company, or it entering into a moratorium, restructuring plan, or insolvency procedure.

Summary

We live in exciting times, with rapid innovations in product development and marketing techniques offering cosmetics brands unparalleled opportunities to grow. As with all new opportunities, however, they can raise new legal challenges that must be overcome to ensure brands remain compliant.   An awareness of the challenges and a willingness to adapt to ensure compliance is the key to a cosmetics brand taking the benefit of these opportunities whilst avoiding the potential harm from getting it wrong.