Alternative Dispute Resolution for Pharmaceutical Disputes

ALTERNATIVE DISPUTE RESOLUTION FOR PHARMACEUTICAL DISPUTES

The Pharmaceutical industry is known as one of the fastest-growing business segments in the world with a global revenue of $1.25 trillion in 2019.[1] The industry plays an active role in driving medical progress by researching, discovering, and developing innovative treatments and medicines. In parallel, the pressing demand for medical innovation becomes the source of more conflicts in the pharmaceutical industry. ADR provides a neutral forum for pharma companies to resolve disputes taking into consideration of parties’ strategic goals.

Pharmaceutical-related Disputes

In view of its significant size and wide-reaching nature, pharmaceutical disputes are routinely faced with complexity and high value transactions. With a strong concentration on research and innovation, intellectual property rights are considered as one of the most vital and valuable economic assets of to the pharmaceutical company.[2] Intellectual Property Rights, such as patents and regulatory data exclusivity, incite knowledge development and innovation in the field.[3] An effective IP protection provides companies the legal certainty to invest in a long-term process of discovering, developing and delivering new medicines to patients, to healthcare systems and to the community in general.  Nevertheless, disputes are inevitable in such competitive market.

The IP disputes commonly involve cases of patent infringements, patent invalidations and violations of trademarks.[4] It is also worth emphasizing that pharma companies also rely heavily on the protection of trade secrets and undisclosed data, especially information regarding formula and manufacturing process.[5] With an inherently competitive nature of the industry, disputes over exposure or exploitation of trade secrets are unsurprisingly one of the most common IP disputes.

Apart from this, contractual relationships are becoming an integral part of the pharma industry.[6] Specifically, pharmaceutical companies have a long-standing willingness to enter collaborative commercial arrangements, such as Research & Development agreements (‘R&D’), co-promotion, co-marketing, distribution or license contracts.[7] These contractual relationships provide fertile ground for disputes arising out of conflicts of conflicting interpretations or performance of contractual obligations. As the demand for medical development is growing, many innovators and small to medium enterprises (‘SMEs’) are moving towards consolidation to bolster innovation and efficiency.[8] Along with great advantages, M&A agreements do give rise to disputes over assets, liability and warranty claims.[9]

Implementing Alternative Dispute Resolution in the Pharmaceutical Sector

ADR, in the pharmaceuticals industry, confirms its crucial role as an effective means for solving disputes without lengthy procedure, burden on legal costs and litigation risks. According to The International Centre for Dispute Resolution, the pharmaceutical industry has established itself as the key player in international arbitration in the recent years.[10] The 2013 WIPO Survey reflects that arbitration is identified as the second (24%) most preferred dispute resolution clause for use in commercial contracts in the pharmaceutical sector.[11]

International arbitration is increasingly used to resolve pharmaceutical disputes, particularly in the context of transnational commercial arrangements. With a cross-border nature, these arrangements span multiple jurisdictions and involve many stakeholders along with high value claims. On this note, parties seek to resolve the disputes swiftly and discreetly in order to mitigate any potential damages to the companies. Therefore, the use of arbitration is the more preferable resolution to cross-border disputes. The parties have the freedom to appoint an arbitrator of their choice.[12] Furthermore, the parties also have the option to assess the professional background and technical expertise to select the best suited arbitrator for the dispute.

In the meantime, it is also worth highlighting that the resolution to disputes in this sector requires an expertise on highly scientific and technical information.[13] Hence, it is also a nig challenge for parties to select the right expert witnesses. On the other hand, arbitration grants parties the autonomy to select an arbitral procedure and tribunal which increases the likelihood of a favourable outcome for both parties.[14] By the same token, arbitration gives the opportunity to agree on the seat of arbitration and the national applicable law is accordingly determined with minimal intervention of the state courts.[15] This prevents a lengthy procedure due to additional disputes over the determination of applicable jurisdiction in the context of multi-jurisdictional agreements.

In light of confidentiality, there exist no doubts that arbitration can offer a higher preservation of privacy without disclosure of valuable information on IP rights and trade secrets to public. As a result, parties are inclined to resolve their dispute through a confidential process with arbitration.  Nevertheless, according to experts, the aspect of confidentiality is not absolute. In 2016, the CJEU rendered its decision in the Genentech v Hoechst/Sanofi[16], following a request for a preliminary ruling from the Paris Court of Appeal, in relation to the annulment of an ICC award.[17] This case serves as a reminder that arbitration-related court proceedings can still make the details of the disputes available to the public even though both parties agreed to the confidentiality of the arbitration process.[18]

On a similar note, mediation is considered as an effective means to reach an amicable settlement. Mediation does grant parties more control of the entire process and strives for win-win solutions for both parties.[19] Specifically, the mediator, in a neutral capacity, only assists the parties to resolve their conflicts and in a sense, facilitates the negotiation between the parties.[20] Accordingly, more than 80% of disputes which are voluntarily submitted to mediation receive satisfactory outcomes.[21]

Mediation is believed to be a preferable option for pharma disputes upon contractual agreements, such as distribution of sales or performance of contract.[22] Evidently, it is worth referring to the recent disputes between the EU and the coronavirus vaccine-producing pharmaceutical company, which is a pressing concern to the community at the present. In January 2021, a dispute arose between the EU and AstraZeneca upon vaccines deliveries.[23] The British-Swedish pharma firm announced to reduce the supply available to the Union to only 31 million doses in the first quarter instead of 80 million doses as planned.[24] Specifically, they have encountered production problems at the Belgian plant where it produces the vaccines.[25] With a pressing time frame, mediation is precisely the best suited path towards a speedy, efficient and equitable solution. A flexibility of negotiation process facilitated by a neutral mediator can incentivize AstraZeneca to boost the supply and deliveries speed of vaccines with far less disruption to the general production of vaccines.

Conclusion

In conclusion, commercial disputes are inevitable in a highly competitive field such as the Pharmaceutical sector. Due to its size and value, the disputes routinely involve high complexity, multi-jurisdictional and high-value claims. Therefore, firms often seek to avoid lengthy and complex legal proceedings with high intervention from national courts. In light of the parties’ strategic goals, ADR accordingly comes into the scene as a swift, efficient, equitable and discreet solution for the pharma companies.  

By Charlotte Tran

[1] ‘Global pharmaceutical industry - statistics & facts’ (Statista 2020)

https://www.statista.com/topics/1764/global-pharmaceutical-industry/#dossierSummary__chapter1 accessed 5 April 2021.

[2] ‘Pharmaceuticals: Intellectual Property Protection’ (PwC) https://www.pwc.com/il/en/pharmaceuticals/intellectual-property-protection.html#:~:text=Intellectual%20property%20(IP)%20is%20a,to%20that%20company's%20future%20success.&text=Since%20then%2C%20companies%20have%20become,an%20interpretation%20of%20IP%20rights accessed 5 April 2021.

[3] ‘How does Pharmaceutical IP work?’(Pfizer EU Policy) https://www.pfizereupolicy.eu/article/how-does-pharmaceutical-ip-work accessed 5 April 2021.

[4] Ibid.

[5] ‘Resolving Pharmaceutical Disputes through Arbitration’ (Al Tamimi Co) https://www.lexology.com/library/detail.aspx?g=c53a0e38-5de5-43e1-bbc7-caa9d9f644fc accessed 5 April 2021.

[6] Chris Parker & Lizzie Reeves, ‘Arbitrating Pharma Disputes on the Rise – Planning Ahead Makes Sense’ (Herbert Smith Free Hills) https://www.herbertsmithfreehills.com/latest-thinking/arbitrating-pharma-disputes-on-the-rise-%E2%80%93-planning-ahead-makes-sense accessed 6 April 2021.

[7] Ibid.

[8] Roerich Bansal, Ruth De Backer, and Vikram Ranade, ‘What’s behind the pharmaceutical sector’s M&A push’ (McKinsey) https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/whats-behind-the-pharmaceutical-sectors-m-and-a-push accessed 6 April 2021.

[9] Ibid.

[10] Herbert Smith (n 6).

[11] Ibid.

[12] Lexology (n 5).

[13] ‘Arbitration in the Life Sciences and Pharmaceutical Sector’ (WIPO) https://www.wipo.int/export/sites/www/amc/en/docs/2017_pharmacdm.pdf accessed 11 April 2021.

[14] Ibid.

[15] Ibid.

[16] Case C-567/14 Genentech Inc. v Hoechst GmbH and Sanofi-Aventis Deutschland GmbH [2016] ECLI:EU:C:2016:177.

[17] WIPO (n 13).

[18] Ibid.

[19] Kenneth P. Kelsey, ‘Mediation: the Sensible Means for Resolving Contract Disputes’ https://www.mediate.com/articles/kelsey.cfm accessed 7 April 2021. 

[20] Ibid.

[21] Ibid.

[22] ‘Life Sciences Mediation, Arbitration and ADR Services’ (Jams ADR) https://www.jamsadr.com/lifesciences accessed 7 April 2021.

[23] Horst Eidenmüller, ‘Mediating the Vaccine Dispute’ (Oxford Law) https://www.law.ox.ac.uk/business-law-blog/blog/2021/02/mediating-vaccine-dispute accessed 7 April 2021.

[24] ‘AstraZeneca delivered 29.8 million Covid vaccine doses to European Union’ (Business Standards) https://www.business-standard.com/article/current-affairs/astrazeneca-delivered-29-8-million-covid-vaccine-doses-to-european-union-121040100603_1.html accessed 7 April 2021.

[25] Mediating the Vaccine Dispute (n 19).