Recently, CHAILEEDO noticed that Chapter Seven, a skincare brand that debuted in 2022, has been taken to court by contract manufacturers and packaging material suppliers due to payment disputes. The brand has also been listed as a judgment debtor multiple times, with the company’s legal representative being detained for 15 days for refusing to comply with the judicial order. It is reported that this is the first case of a beauty company where the legal representative has been detained for failing to comply with a court ruling.
CHAILEEDO found that, this brand, with Boswellia as its core selling point, has appeared in live streaming sessions of top influencers such as Xiang Tai Chen Lan and Mr. Dong.
It is worth mentioning that from the time the products were registered for sale to being taken off the shelves, the actual “survival” time of the Chapter Seven brand was less than a year. So, what exactly happened behind the scenes?
Enforcement Target Exceeds Eight Million, Legal Representative Detained
Recently, CHAILEEDO learned from the judicial documents website that the People’s Court of Shangyu District, Shaoxing City, Zhejiang Province, had filed a case in September last year for the enforcement of a contract dispute between Jinsheng Plastics Industry Ltd. Co. from Shaoxing City (referred to as Jinsheng Plastics Industry) and Hangzhou Huihua Biotechnology Co., Ltd. (referred to as Huihua Biotechnology). The enforcement target was set at 815,000 yuan plus corresponding interest.
However, due to the failure of Huihua Biotechnology to comply within the specified period, all of its Chapter Seven skincare products (2,087 sets) were auctioned off multiple times according to the law, but none were sold. Ultimately, as Huihua Biotechnology continued to resist compliance, the court made a decision to detain the legal representative of the company, Mr. Yin, for 15 days.
It is noteworthy that in July of the same year, Huihua Biotechnology was sued by Dermaceutical Products Inc. for a processing contract dispute. According to information from the China Enforcement Information Disclosure Network, from September of last year to present, Huihua Biotechnology has been listed as a judgment debtor by courts in Suzhou and Shaoxing, with the total enforcement target exceeding eight million yuan.
Furthermore, as indicated by a cosmetics regulatory app, all 11 products registered under companies with the name “Chapter Seven” are linked to Dermaceutical Products.
So, what is the relationship between Huihua Biotechnology, Dermaceutical Products, and the Chapter Seven brand? Why has Huihua Biotechnology accumulated such massive debts and been repeatedly listed as a judgment debtor?
According to the China Trademark Office, Huihua Biotechnology applied to register the trademark “Chapter Seven” in 2016 under international classification 03 for daily chemical products, and the trademark status is listed as registered. Upon investigation, CHAILEEDO found that the operator of the Chapter Seven skincare Douyin store is also Huihua Biotechnology.
CHAILEEDO discovered from the China Court Open Network that in July 2023, Huihua Biotechnology was sued by Dermaceutical Products for a processing contract dispute.
According to court records, the plaintiff Dermaceutical Products stated that on November 30, 2022, Huihua Biotechnology commissioned them to process a batch of skincare products. The contract stipulated that the trademark and packaging materials would be provided by Huihua Biotechnology, while the product formula and contents would be provided by Dermaceutical Products, with payment due within 30 days of delivery.
That same year, Huihua Biotechnology placed an initial order for the Chapter Seven skincare product series, totaling 80,000 sets at a unit price of 99.52 yuan each. Dermaceutical Products claimed that from the time of delivery until the contract expired, Huihua Biotechnology did not pay a single cent. Starting from March 2023, Huihua Biotechnology deliberately cut off communication. Subsequently, in the following month, Dermaceutical Products, along with two other packaging material factories, visited Hangzhou to locate Huihua Biotechnology, but to no avail. This led them to resort to legal action.
As the defendant, Huihua Biotechnology argued that the plaintiff’s claims lacked factual and legal basis, alleging that the plaintiff was an anonymous shareholder of the defendant and that their products caused allergic reactions in consumers. Ultimately, due to the need for further investigation into the facts of the case, no judgment was made during this court session.
For further details on the dispute between the two parties, CHAILEEDO tried to contact the aforementioned companies. Huihua Biotechnology promptly hung up the phone upon CHAILEEDO revealing their identity and subsequent attempts to call were met with an engaged tone.
Regarding the incident, Jinsheng Plastics Industry stated that a third party was tracking the situation and declined to provide further details citing inconvenience. Dermaceutical Products mentioned that they needed to consult with their company before deciding if they could provide information for reporting. However, as of the time of writing, CHAILEEDO had not received any response.
Several top influencers in China have previously promoted Chapter Seven products.
According to the National Enterprise Credit Information Publicity System, Huilhua Biotechnology was established on November 18, 2022, with Yin as the legal representative and actual controller holding a 55% stake. The company’s main business scope is focused on technology promotion and application services.
According to the company’s official website, Dermaceutical Products is headquartered in Long Island, New York, and is an internationally leading cosmetics company. After 12 years of development, it has established two major research and development centers in Suzhou, China, and New York, USA, along with three major production bases in China, the USA, and Canada, producing skincare, makeup, hair care, pet care products, among others.
As per the public account “Yan An Tang,” Dermaceutical Products has also created the brands HushX and Leyan. Recently, Yan An Tang CEO Zhao Guoqing publicly mentioned that after understanding both the Chinese and American markets, they began setting up an ODM cosmetics factory named Dermaceutical Products (Suzhou) Co., Ltd. Prior to the aforementioned incident, CHAILEEDO reached out to Zhao Guoqing’s account “Yan An Tang Lao Zhao” via the social platform Red, but had not received a response at the time of writing.
CHAILEEDO learned from a cosmetics regulatory app that Dermaceutical Products manufactures products for well-known brands and beauty retailers such as Sephora, Funny Elves, Boben, HushX, and Guanfu.
It is understood that Dermaceutical Products produces 11 Chapter Seven brand products for Huilhua Biotechnology, including essences, facial cleansers, eye creams, and moisturizers, with five products highlighting boswellic acid as a core selling point.
According to the Chapter Seven product details page, the brand’s scientist is Mr. Harvey Gedeon, who serves as the Chief Technology Officer (CTO) of a major beauty conglomerate, leading a team of 140 researchers in developing the periodic stage skincare brand Chapter Seven. Additionally, the Chapter Seven brand is endorsed by institutions and universities such as Amyris, the Columbia University Medical School, and Beijing Technology and Business University.
Among them, the Chapter Seven Boswellic Acid Essence Cream boasts a 30% boswellic acid content, claiming to lift, firm, and brighten the skin. The product page also includes a test report showing the addition of a 30% hydroxypropyl tetrahydropyranol solution. This product is priced at 2697 yuan for 50g, with an average actual selling price of 297.53 yuan, having sold 817 units and currently marked as “out of stock.” Additionally, Chapter Seven once released a high-concentration boswellic acid set, claiming “53 items in one go,” estimated at 299 yuan.
Notably, according to Feigua data, the Chapter Seven brand on Douyin is associated with three stores selling skincare, makeup, and beauty products under the names Chapter Seven Chapter VII. These stores were opened in December 2022 on Douyin but had no products for sale after April the following year. This implies that the brand existed on Douyin for less than half a year.
From December 2022 to April 2023, Chapter Seven on Douyin generated sales ranging from 10 to 25 million yuan, with sales exceeding 25,000 units. Live streaming channels accounted for 98.97% of sales, primarily through influencer promotions by well-known Chinese figures such as Tai Chen Lan, Mr. Dong, Huang Yi, and Chen Yiru.
Looking at specific stores, the Chapter Seven skincare Douyin store opened on December 4, 2022, but showed no sales performance after February 15, 2023. The total historical sales ranged from 5 to 7.5 million yuan, with a total sales volume of 25,000 to 50,000 units. Currently, this store has no products for sale.
CHAILEEDO also discovered that from March to now, the People’s Court of Shangyu District, Shaoxing City, Zhejiang Province has auctioned off 2087 sets of Chapter Seven skincare products owned by Huilhua Biotechnology twice, with a starting price ranging from 340,000 to 280,000 yuan, averaging 134.16 yuan per set, but all auctions ended without a sale.
It is worth mentioning that as of the time of writing, Chapter Seven brand products are still available on the JD platform, with Chapter Seven Boswellic Acid Cleansing Milk priced around 820 yuan.
“Short-lived” brands, “injured” factories
Regarding the dispute between Huilhua Biotechnology and Dermaceutical Products, a senior industry expert mentioned that this reflects the current trend where the development of e-commerce channels has significantly lowered the barrier to entry for brand creation, leading to the proliferation of many short-term, fast fashion brands. Additionally, Chinese factories often face situations of overcapacity, and in their pursuit of business growth, they sometimes overlook the scrutiny of brand selection, ultimately transferring the risks onto themselves.
An official from a cosmetics company in Guangdong told CHAILEEDO, “As suppliers for new brands, factories should pay attention to the risks involved in the process to avoid situations where the brand fails to take off, accumulating a large amount of unpaid invoices, putting themselves in a passive position.”
Industry insiders also bluntly state, “Brands and factories often rise and fall together, fortunate factories can quickly boost their performance through the right branding partnerships, and vice versa.”
Furthermore, a research and development executive from a cosmetics company in Hangzhou mentioned to CHAILEEDO, “This also reflects the disregard some companies have for the value of a brand, attempting to build a brand simply by registering a trademark, resulting in brands that struggle to have long-lasting viability.”
CHAILEEDO has noticed that brands with short-term high performance followed by a rapid decline are not uncommon. For instance, All Natural Advice, which was previously popular, quickly rose in sales by leveraging the 24-hour brand self-broadcasting trend on Douyin, entering the top ranks of Douyin’s skincare charts. However, once the traffic declined, they found themselves in a precarious situation.
In fact, the aforementioned events also highlight the anxiety within factories. This year, several cosmetics OEM factories have explicitly expressed to CHAILEEDO that the cosmetics industry is experiencing a trend of uncertainty, with many small and medium-sized OEM enterprises struggling on the edge. The expected recovery of the industry seems slow in coming, coupled with increasingly stringent regulations. Surviving and maintaining a position in the market requires endurance and patience.
It is foreseeable that as industry consolidation accelerates, cosmetics OEM factories will continue to face significant challenges. In the face of the intensifying competition in the cosmetics market, the key challenge for cosmetics production companies remains in how to build core competitiveness rather than relying on short-term orders for temporary relief, in order to survive and thrive in the market.
