The life sciences industry is seeing huge growth right now. The sector was already booming prior to COVID-19, but there can be no doubt that the pandemic accelerated that growth by highlighting the critical importance of the sector, hastening the speed of scientific innovation and collaboration, and through the increased funding provided by some governments to combat the unprecedented situation.
As with any industry, growth in the sector will necessarily be accompanied by an increase in disputes and may help to explain the growth in life sciences arbitrations that has been reported by major arbitral institutions, such as the ICC and the LCIA, in recent years. The trend likely also reflects an increase in cross-border collaboration between companies within the sector and a move away from the traditional “carve out” in arbitration agreements for IP disputes.
This article considers some of the current trends in life sciences arbitrations, what might be driving those trends, and what new trends we might see in the near future.
More arbitration, less litigation
Disputes can arise at any stage of a life sciences project, from claims that a contractual milestone hasn’t been met in an R&D agreement, to disputes over the royalty fee payments under an IP licence agreement and product liability insurance coverage claims. Arbitration is particularly well-suited to disputes in the sector for several reasons, and recognition of this by companies operating in the industry is leading to more disputes being resolved by way of arbitration, rather than traditional court litigation.
One of the primary drivers for the move towards arbitration is the private and (typically) confidential nature of the process, which lends itself to the resolution of disputes which can often touch upon or centre around highly commercially sensitive information. Take, for example, the 2020 dispute between Genmab and Johnson & Johnson’s Janssen Biotech Inc., which concerned a dispute over royalty payments under a licence agreement related to myeloma drug Darzalex. Although the fact of the arbitration (and, indeed, the end result) was reported by the press, the arbitration itself was confidential, meaning that, unlike in court litigation, there were no public hearings and no publicly available documents containing sensitive information about pricing, royalty rates, revenue, and profit projections, etc.
Other drivers include the increase in cross-border partnerships and collaborations, like those seen during the COVID-19 pandemic. It goes without saying that parties to these sorts of commercial arrangements rarely want their disputes to be resolved by the local courts of the adverse party, preferring arbitration that provides a neutral forum. The ease of enforcement of arbitral awards via the New York Convention is also an obvious advantage in multi-jurisdictional disputes of this nature.
Finally, the ability to appoint an arbitrator or tribunal with industry-specific experience is a huge advantage of arbitration over litigation in the life sciences context, often saving the parties significant time and expense by removing the need to educate a judge on relevant scientific matters and sometimes even obviating the need for certain expert evidence.
An increase in IP arbitrations
The recent growth in life sciences arbitrations is also likely to be linked to the demise of the so-called “IP carve out”. Historically, parties to intellectual property contracts have often included a “carve out” in their arbitration agreements/clauses for IP infringement claims, due to uncertainty about the arbitrability of such claims and the usefulness/enforceability of arbitral awards in this context. Such “carve outs”, although well-intended, have always had the potential to give rise to costly and time-consuming satellite litigation over the tribunal’s jurisdiction in the case of complex commercial disputes where there are often numerous, interrelated, and overlapping issues. As the IBA Guidelines for Drafting International Arbitration Clauses (2010) recognise:
“[A] dispute over the ownership or validity of intellectual property rights under a licensing agreement may also involve issues of non-payment, breach, and so forth, which could give rise to intractable jurisdictional problems in situations where certain disputes have been excluded from arbitration.”
More recently, however, there has been a move away from this approach and a resultant increase in the number of IP arbitrations, including in the life sciences sector. In addition to concerns about jurisdictional disputes, this change has no doubt been driven by the increasingly global nature of the life sciences industry, which has meant that companies needing to resolve crucial patent disputes would have to bring proceedings in multiple different countries where the patent was registered, sometimes giving rise to conflicting decisions in different courts. Arbitration enables the parties to instead resolve these complex, multi-jurisdictional disputes in a single set of proceedings and before one tribunal.
The change also reflects the fact that it is now generally accepted that the ownership and validity of IP rights can be determined by an arbitral tribunal, although care still needs to be taken in some jurisdictions. In the UK, for example, it is well established that a tribunal does have jurisdiction to determine the ownership and validity of a patent. However, its award will only be enforceable between the parties and cannot amend the patent register, which the patentee would have to agree to amend. The position in the UK may, however, be contrasted with the position in Switzerland, where arbitral awards can be directly registered in the patent register.
The impact of Covid?
There can be no doubt that the COVID-19 pandemic has and will continue to give rise to claims in the sector. The sheer speed with which life sciences companies were forced to enter into hugely complex commercial arrangements in unprecedented circumstances and without a clear idea of what the future held created ample scope for disputes. Some of these disputes have already been well publicised, like the disagreements between AstraZeneca and the EU (now settled) and the Dominican Republic over the delayed delivery of COVID-19 vaccines. Some less “obvious”, but still COVID-related, disputes may arise from the fact that resources and attention were simply driven away from existing projects and relationships during the pandemic period, leading to allegations that one partner hasn’t used the required level of diligence to develop a programme or that a particular development milestone has been missed due to resources being diverted elsewhere.
Looking forward
Looking forward, it is very likely that the trend of increased disputes, and therefore arbitrations, in the life sciences arena will continue, with both the current global economic climate and the war in Ukraine being inevitable drivers. It is now commonplace in the industry for alliances and collaborations to be formed between large, global pharmaceutical companies on the one hand and much smaller, often family-owned, biotechnology companies on the other. The collaboration between Pfizer and BioNTech to carry out clinical trials and manage the logistics of manufacturing and distribution of the Pfizer-BioNTech COVID-19 vaccine was a prime example of this in practice. These smaller, family-run companies will inevitably be feeling the impact of the current economic climate and increased costs at the moment, far more so than their larger partners and collaborators. It is easy to see how this could give rise to disputes, particularly where long-term development projects were entered into prior to the pandemic and the war, and are now proving to be more expensive to realise than initially anticipated.
Finally, the war in Ukraine itself has and continues to give rise to disputes between commercial parties, including in the life sciences industry, most notably where supply-chain disruption has been caused by economic sanctions against Russia and Belarus. No doubt, we will see these trends reflected in the latest updated statistics when they are released by the major arbitral institutions in due course.
This article was first published in Pharmaphorum, 21 April 2023, and may be found on the Pharmaphorum website here.
