Being Precisely Imprecise: Balancing Intellectual Property With Regulatory Compliance
March 31st, 2017
Companies around the world are performing a high-wire balancing act when it comes to meeting regulatory compliance requirements and protecting their intellectual property. Teetering too far in either direction can cause severe financial consequences.
Every day, organizations author safety data sheets, or SDSs, and labels for hazardous chemicals to comply with all applicable regulations, and, of course, to protect workers, consumers and the environment. Great efforts are taken to avoid fines.
But compliance implies that information needs to be disclosed. In some cases, the disclosed information is very general, such as a skull and crossbones picture on a label. In other cases, the information is much more technical, such as the chemical names of the hazardous ingredients of a complex formulation and their respective concentration.
While all SDS authors want to protect workers and the environment, there are different opinions about optional regulatory requirements.
Some of these requirements might bring limited practical information to the downstream users while jeopardizing the company’s intellectual property. Two areas are particularly sensitive: the precise chemical identity of the hazardous ingredients (typically reported in Section 3 of the SDS), and their respective concentration.
Let’s examine this more closely …
Protecting the Precise Chemical Identity of Ingredients
Formulating mixtures is a tricky business. First, a functional product is needed and it needs to meet certain desired specifications, e.g., paint that does not corrode or ink that does not rub off. Second, it needs to be safe or at least its hazards need to be clearly communicated. Third, it needs to comply with numerous regulatory requirements.
And that’s where the problem lies.
This last condition can mean companies need to provide formulation details to the world. Clearly, it’s frustrating to have to disclose the details of an innovative mixture because this provides the competition a recipe to follow (or worse, to improve!).
Thankfully, the regulatory bodies of most major countries have built-in exceptions, which under certain circumstances are allowing the formulator to hide the chemical identity of key ingredients. No need for the world to know that Aunt Ruby’s Magic Cleaning Solution is actually diluted isopropyl alcohol. Of course, Aunt Ruby’s Magic Cleaning Solution is an oversimplification compared with typical formulations. A more realistic example might be a couple of secret, proprietary ingredients that make the paint of an innovative company easier to apply than that of the competition. These exceptions to disclosure are known as Trade Secret exemptions. In some markets, these exemptions can be granted by the appropriate authorities. In other markets, the formulator can just readily use the exemptions as long as certain requirements are met.
Managing this on a worldwide basis requires, in some cases, the collection and record-keeping of various information to back the Trade Secret exemption in case of a subsequent audit (this is the case in the United States and most Asian countries). In other areas of the world, a more complex registration process is required and fees might be required (this is the case for Canada and Europe).
Once the conditions to back the exemption are met, however, the SDS and Labels need to convey the information in a way compatible with the specific regulatory provisions, which ensures that the workers and users of the formulation are properly protected. Typically, the chemical names and identifiers of key ingredients are hidden or replaced with generic names to preserve the intellectual property of the formulator.
Protecting the Concentration of Ingredients
In many cases, it’s illegal or impractical to hide the chemical identities and identifiers of the key ingredients of a formulation, as the Trade Secrets requirements cannot always be met for each formulation. In these cases, being vague about the concentration of ingredients helps maintain the intellectual property.
Think of it like a special cake recipe, without the quantity of each ingredient, it would be difficult to get the desired results. The same holds true for complex petroleum products or paints. Without the exact concentration of each ingredient, it is very hard for a competitor to re-create an innovative formulation.
For years, mixture formulators were vague about the concentration of key ingredients disclosed in Section 3 of their SDS. Arbitrary ranges were used for key components, for example 20 to 30 percent.
However, with advent of the Globally Harmonized System of Classification and Labelling of Chemicals, better known as GHS, things became more difficult. A provision requires that the health and environmental hazard of a mixture be validated from the upper values of any concentration range shown in Section 3 of the SDS. The methodology to ensure that this requirement is met is not defined in GHS … or in any other publicly available regulatory text.
As GHS spread in recent years, this requirement became a law in many markets, including Europe. There are two options available to companies wishing to remain legally compliant concerning the concentration of disclosed ingredients in Section 3. The first option is to use exact concentrations. While this approach meets the regulatory requirement, it also discloses to the entire world much of the formulator IP. The second option is to rely on a sophisticated software logic that can assign ranges for each ingredient that are not arbitrary, but the result of complex calculations. In addition, the software needs to be easily auditable so that Environmental, Health and Safety experts can verify the classification of the mixture is verified by the upper ranges.
Being precisely imprecise means protecting intellectual property and ensuring regulatory compliance are not two mutually exclusive requirements. It is definitively a challenge to do both and to do both well. However, thankfully, software solutions are available that can move a big part of the burden off formulators who are trying to innovate new products!