Two unlabelled frosted glass cream jars on travertine beside folded linen, one closed with a metal lid and one open showing the cream

AI-generated image.

The short answer: Korean cosmetics law does not decide who owns the formula

The question brands ask most often after an outsourced development project is simple: is this formula ours? Korean cosmetics law does not answer it. What the Enforcement Rule of the Cosmetics Act settles is which documents have to be prepared and kept, and which of them have to be handed over. Whether you may take that formula to another manufacturer, and whether you may keep other brands off it for a period, is settled in the agreement between the parties rather than in the cosmetics rules. The other statutes discussed below add a floor on top of that.

That does not mean the space the contract leaves empty is a complete legal vacuum. Three separate mechanisms operate, each in a different statute: trade-secret protection, limits on demanding and misusing technical data, and technical-data escrow. This article sets out when each one applies, when it does not, and what you therefore have to put in the agreement yourself. The scope is the law of the Republic of Korea. Every provision quoted was read in the original on 25 September 2026, and this is not legal advice on a specific transaction.

Key takeaways

1. What Korean cosmetics law settles is the flow of documents, not ownership

Article 11(1), subparagraph 2 of the Enforcement Rule of the Cosmetics Act (Ordinance of the Prime Minister No. 2109, in force 2 April 2026) requires a cosmetics manufacturer to prepare and keep the manufacturing control standard document, the product standard document, the manufacturing control record and the quality control record. Electronic formats are included.

Subparagraph 6 of the same paragraph requires the manufacturer to submit to the responsible distributor those of the subparagraph 2 documents that are necessary for quality control, with a proviso that in the following two cases they need not be submitted.

Item (b) matters because it does not state one condition. The text sets out the design-develop-produce arrangement, the range that does not affect quality and safety control, and the trade-secret status under a mutual agreement, together. A manufacturer having designed the formula does not automatically close the documents off, and a brand asking for everything does not automatically open them.

The proviso is also only an exception to a duty to submit. It does not decide who may use the formula, or where. Keeping what you do receive stays with the responsible distributor, which is the brand side: Article 12, subparagraph 3 of the same Rule requires it to keep the product standard document and the quality control record received from the manufacturer.

How documents and duties divide across the commercial routes is covered in OEM vs ODM vs private label vs brand sourcing.

2. A formula becomes a trade secret only when three things hold together

Article 2, subparagraph 2 of the Unfair Competition Prevention and Trade Secret Protection Act (Act No. 21065, in force 28 May 2026) defines a trade secret as information on a production method, a sales method or other technical or managerial information useful for business activity, which is not publicly known, has independent economic value, and is managed as a secret.

In practice the element that fails most often is the last one. If formula sheets travel through messaging apps without any marking, if they remain in the account of a person who has left, and if nobody records who opened them, it becomes hard to say they were managed as a secret. Putting a confidentiality clause in the contract and actually managing something as a secret are two different things.

The same definition applies to information the brand holds. Whether consumer research, sensory evaluation criteria and the direction a brand has built for combining materials satisfy those three elements is judged case by case, and protection is hard to assert when they do not.

3. When the party under a confidentiality duty breaks it

Article 2, subparagraph 3, item (d) of the same Act covers a person who is under a duty to keep a trade secret confidential under a contractual relationship or otherwise. If that person uses or discloses the trade secret in order to obtain an improper benefit or to cause damage to the holder, the Act treats it as an infringement.

Where an infringement exists or is threatened, Article 10(1) allows the holder to ask a court to prohibit or prevent the act. Article 10(2) allows the holder to ask at the same time for the destruction of goods that constituted the infringing act, the removal of equipment used for it, and other necessary measures. Article 11 makes a person who causes damage by an intentional or negligent infringement liable for compensation.

There is a time limit. Article 14 sets the prescription period for a continuing infringement. The right to seek prohibition or prevention is extinguished if it is not exercised within three years. That period runs from the day the holder became aware both that its business interests were being infringed or were likely to be infringed, and of the person committing the act. The same applies once ten years have passed from the day the infringing act began.

4. The idea the brand hands over first also has a provision

It is normal for a brand to open a development conversation by describing its concept and the sensory direction it wants. Article 2, subparagraph 1, item (j) of the same Act covers information that contains another person's technical or business idea, has economic value, and was provided in the course of negotiating or performing a transaction such as a business proposal, a tender or a public competition. Using that information improperly for one's own or a third party's business benefit, in breach of the purpose for which it was provided, is an act of unfair competition, and so is providing it to another person for use.

The proviso has to be read together with that rule. The rule does not apply where the person who received the idea already knew it at the time, or where the idea is widely known in the same industry. Saying a concept that circulates freely in the industry does not by itself create a right. That is why it is worth recording what was handed over and when.

5. Two statutes limit demands for technical data, and their scope differs

When a brand asks a manufacturer to hand over the formula and the manufacturing method, two statutes are in play. Both of them protect the party receiving the order, that is, the manufacturer. Neither applies automatically to every transaction: each works only where its own criteria for the parties are met.

The first is the Fair Transactions in Subcontracting Act (Act No. 21340, in force 11 August 2026), the Subcontracting Act for short. Article 2(15) defines technical data as data on a method of manufacturing, repair, construction or service performance that is managed as a secret, and other data that is useful for business activity and has independent economic value, as prescribed by Presidential Decree. Article 12-3(1) provides that a principal contractor shall not require a subcontractor to provide its technical data to the principal contractor or to a third party, with a proviso allowing the demand where the principal contractor proves a justifiable ground. Paragraph (2) applies when data is demanded under that proviso. The principal contractor must agree in advance with the subcontractor on the purpose of the demand, the attribution of rights, the consideration and other matters prescribed by Presidential Decree, then give the subcontractor a document stating them. Paragraph (3) requires a confidentiality agreement to be concluded by the day the technical data is received. It must cover the scope of the data, the list of officers and employees who will hold it, the confidentiality duty and the prohibition on use for other purposes, and compensation for breach, among other matters prescribed by Presidential Decree. Paragraph (4) prohibits the principal contractor from improperly using acquired technical data for itself or a third party, or providing it to a third party, and states that acts done before the subcontract was concluded are included. Article 35(2), subparagraph 2 sets compensation for damage caused by a breach of Article 12-3(4) at up to five times the damage.

That Act does not always apply. Article 2(2) limits principal contractors to either of two categories. The first is a business operator that is not a small or medium enterprise and that has placed an order with a small or medium enterprise. The second is a small or medium enterprise whose annual revenue for the immediately preceding business year exceeds that of the other small or medium enterprise it has placed the order with, subject to a proviso excluding small and medium enterprises whose annual revenue falls within a band prescribed by Presidential Decree. Article 2(3) defines a subcontractor as the small or medium enterprise that received the order from such a principal contractor. In the common arrangement where a small brand has development done by a larger manufacturer, the brand may not be a principal contractor at all, and these provisions then do not apply to that transaction. Whether they do is a question to be answered from the size criteria for the specific parties.

The second is the Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small and Medium Enterprises (Act No. 21447, in force 1 July 2026), the Mutually Beneficial Cooperation Act for short. Article 2, subparagraph 4 defines an entrustment transaction as one in which a person whose business is manufacturing, construction, processing, repair, sales or services entrusts to another small or medium enterprise the manufacturing, construction, processing, repair, service performance or technical development of goods, parts, semi-finished goods, raw materials and the like. The entrusted enterprise performs that work as its speciality. The definition requires the entrusted side to be a small or medium enterprise, and states only the line of business for the entrusting side. Article 25(1), subparagraph 12 prohibits an entrusting company from demanding technical data without a justifiable ground. Article 25(2) prohibits it from improperly using acquired technical data of the entrusted company for itself or a third party, or providing it to a third party. The text of paragraph (2) limits the technical data it covers to technical data that is managed as a secret.

So whether either statute applies depends on who the counterparty is and how large each side is. The first question to settle before development starts is therefore which statute applies to your transaction, and the second is how the agreement will cover what neither of them reaches.

6. Escrow is what prepares for a manufacturer that stops operating

The risk brands notice late is not about documents but about continuity. If the manufacturer stops operating while you hold no formula, the way to make the same product again disappears with it. The Mutually Beneficial Cooperation Act provides a separate mechanism for exactly that case.

Article 24-2(1) allows entrusting and entrusted companies to deposit technical data by mutual agreement with a depositary, an institution equipped with specialist personnel and facilities. Article 15-2 of the Enforcement Decree of that Act (Presidential Decree No. 36424, in force 1 July 2026) lists two kinds of depositary. The first is the Korea Foundation for Cooperation of Large and Small Business, Rural Affairs, under Article 20 of the Act. The second is a corporation, institution or organisation that the Minister of SMEs and Startups recognises as capable of holding technical data. It must have all of the following: a dedicated storage facility for the deposit; facilities for constant temperature and humidity, fire prevention, access control, security and environmental purification; and legal and technical specialists for contract review, intellectual property protection and technical verification.

Article 24-2(2) sets out two grounds on which an entrusting company may ask the depositary to release the data the entrusted company deposited, and either one is enough. Subparagraph 1 is the consent of the entrusted company. Subparagraph 2 is that conditions for release agreed between the two companies are met, such as the entrusted company losing its rights through a declaration of bankruptcy or a resolution to dissolve, or closing its place of business so that it cannot carry on business. The second ground works only if the release conditions were agreed in advance.

Escrow also benefits the manufacturer: it can meet a demand for production continuity without handing the data over. Article 24-3(2) provides that where a dispute arises between the parties or interested persons over the technology of a depositing company registered under its real name, the depositing company is presumed to have developed it as described in the deposited material. Article 25(1), subparagraph 13 prohibits an entrusting company from disadvantaging an entrusted company that has asked for escrow.

7. What to settle in the agreement before development starts

What fills the space the statutes leave is the agreement. These items set boundaries rather than numbers.

These are better settled before you ask for a quotation, because negotiating them after the formula exists changes the weight of the conversation. How the nature of the documents shifts depending on whether you start from a stock formula or a new one is set out in base formula vs custom formulation.

8. What does not change, however the rights are allocated

Some things stay the same whoever holds the formula rights, and they are worth listing.

First, the statutory duties of the responsible distributor. Whether the manufacturer designed the formula or the brand brought it, the duties the law places on the responsible distributor are not moved to another operator by an agreement between the two companies. That boundary is covered in what the brand owner still has to do.

Second, ingredient regulation. The standards that set which materials may be used, and at what limits, apply independently of how the formula rights are allocated. The order in which to check that is set out in choosing cosmetic ingredients.

Third, the duty to keep documents. Article 12, subparagraph 3 of the Enforcement Rule, noted above, requires the product standard document and the quality control record received from the manufacturer to be kept. If you agree to receive documents, prepare the system that keeps them as well.

9. Frequently asked questions

If we pay the full development cost, does the formula automatically become ours?

None of the provisions checked for this article say so. Who paid and to whom the rights attach are separate questions, and the second one is settled by the agreement.

Can we take a formula we received and have another manufacturer produce it?

That is a matter for the agreement. Even where the agreement allows it, whether the same formula gives the same result on different equipment has to be checked separately. For reference, Article 5(1), subparagraph 2 of the Enforcement Rule lists five changes that require a responsible distributor to file a change of registration: a change of the responsible distributor, of trade name, of the location of its place of business, of the responsible distribution manager, and of the responsible distribution type. Changing the contract manufacturer is not written into those five. If the change alters the responsible distribution type itself, however, it falls under item (e).

Does signing a confidentiality agreement make the formula a trade secret?

The agreement is one element of several. The definition in Article 2, subparagraph 2 of the Unfair Competition Prevention and Trade Secret Protection Act requires the information to be not publicly known, to have independent economic value, and to be managed as a secret, together. Without the management practice to match, the document alone is not enough.

Can the manufacturer use the concept we gave it for another brand?

Article 2, subparagraph 1, item (j) of that Act treats the improper use of an idea provided in the course of negotiating or performing a transaction as an act of unfair competition. A proviso removes an idea the recipient already knew, or one that is widely known in the same industry. Keeping a record of what was provided and when is the practical answer.

If the manufacturer shuts down, can we obtain the formula?

If technical-data escrow was arranged in advance, Article 24-2(2) of the Mutually Beneficial Cooperation Act allows a request for release to the depositary on either of the grounds it lists. One is the consent of the entrusted company. The other is that agreed release conditions are met, such as bankruptcy, a resolution to dissolve, or closure of the place of business so that business cannot be carried on. Without a deposit in the first place, that route does not open at all.

10. Next steps

Formula rights are not something to tidy up after development ends. They belong in the decisions you make before the brief goes out. Writing down what you will receive and how far you may use it makes every later conversation shorter.

EVAS runs planning, design, research, manufacturing, logistics and brand content in house. To narrow the formulation direction first, see the formula library; to see the order development follows, see the development process; and to work through the conditions of the product you are planning now, use contact. Other articles are in insights.

Sources