Pharmaceutical disputes, being the largest and fastest-growing business sectors in the world are increasingly being settled through international arbitration, particularly in the context of transnational commercial agreements, licensing disputes, M&A disputes, and trade secret regulations. These agreements span multiple jurisdictions and involve numerous stakeholders in addition to high-value claims due to their cross-border nature. As such, the parties look for ways to settle the disagreements quickly and covertly, in order to lessen any potential harm to the business. Its significance and influence are anticipated to continue expanding; after reaching a value of USD 1,494.67 billion in 2021, it is expected that global revenue would reach USD 2,401.22 billion by 20291. The sector offers a wide range of products and services, including the creation of pharmaceutical items, medical devices, and diagnostic equipment. As a result, the major participants in the sector must create and uphold commercial legal contracts, conduct cross-border operations, and adhere to national and international regulatory standards.
It is not surprising given the industry's size and significance that its participants frequently become embroiled in laborious & expensive disputes. Due to the complexity of the pharmaceutical industry, several types of disagreements frequently develop. With alternative dispute resolution procedure and procedures customized to suit the requirements of the industry with the help of party autonomy, choice of adjudicators, and seat, the pharmaceutical sector can take advantage of this mode of dispute resolution. As a result, arbitration is progressively taking over as the technique of choice for resolving disputes involving pharma Industries.
Different kinds of agreements in the Pharmaceutical Sector.
1-Manufacturing, supplier, and vendor quality Agreement.
Pharmaceutical companies need to maintain the quality of their product since they practice in healthcare sector and have to follow the guidelines fostering the contract of any agreement. They are managed by current good manufacturing practice (CGMP)2. This type of agreement is signed by the parties pertaining to the contract and the manufacturing unit. The whole procedure is regulated by the Food and Drug Administration (FDA)3, which has the sole responsibility to maintain the manufacturing, marketing, and distribution of all public health care goods.
As such their Vendor Quality Agreements needs to focus on the quality of the raw material received from the manufacturing partners and the quality of the final material being produced by the producing unit (supplier).
As the Food and Drug Administration (FDA) is the main authority managing the medical agreements, it has a significant role in the nation's counter-terrorism capability4. FDA fulfils this responsibility by ensuring the security of the food supply and by fostering the development of medical products to respond to deliberate and naturally emerging public health threats. On the basis of the present situation and the upcoming medical devastations, they have to manage the medical tendency of the country.
The relevance of FDA is very important in any pharmaceutical business for procuring licences. This fact was highlighted in the case of Apotex v. United States NAFTA5. Apotex, a Canadian-based pharmaceutical company, brought investment arbitration claims under NAFTA. There were three decisions rendered in that saga, the latest of which is in August 2014. Apotex claimed that the US had violated its treaty obligations - national treatment, most favored nation treatment, and minimum standard of treatment - when the Food and Drug Administration (FDA) issued a series of decisions that effectively prevented Apotex's US subsidiary from importing certain pharmaceuticals produced in facilities in Canada, the US argued that importation authorizations were incapable of being 'investments' within the meaning of NAFTA.
The Arbitrator, while adjudicating the dispute, recognized the res judicata effect of the prior Apotex awards and held that these authorizations were not an 'investment' within the meaning of the treaty. This case exemplifies the complexity of life sciences investment arbitration claims because they often arise in the context of a highly regulated industry. The Apotex case is a red light for similar claimants, who must carefully consider what constitutes 'protected' investment and how to frame it appropriately to establish a tribunal's jurisdiction, in particular when the main driver of the claimant's alleged right is a government-issued authorization to import or market a particular product in the relevant jurisdiction
2- License Agreements.
In India, the pharmaceutical sector is regulated by 'drug and cosmetic act and rules6. They are responsible for all kinds of imported goods, manufacturing goods, distribution, and sale of drugs. For starting a pharmaceutical business it's mandatory to take a license from a Drug Office which is known as a drug license, which is necessary to regulate and manage the production of medicines. As such in order to maintain the accuracy of the research unit and the pharmaceutical companies, a license from the Government of India is compulsory.
3-Product Supply Agreements.
A product supply agreement is a contract signed between a supplier of the goods and a buyer who will buy the product. In the agreement, all kinds of terms and conditions will be mentioned regarding the medicine and all kind of pharmaceutical items which will be traded between the parties or the countries. The contract will also specify agreed terms and conditions as well as the consequences in the event of a breach of the terms.
4-Research and Development Agreements.
Any pharmaceutical company that is in the business of ongoing innovation and development must prioritise research. Research and development are the foundational component of the organisation since there are several types of development, such as technological, instrumental, and medical. Therefore, it's crucial to form cooperative relationships with other research organisations throughout the world in order to preserve the research. This calls for various types of agreements with various organisations based on the research technique they provide7.
5-Technology Transfer Agreements.
It's crucial for businesses to get into a collaborative arrangement with sectors providing scientific technologies, that are leaders in their respective fields, in order to maintain a diversity of research in various industries. This will allow both parties to gain from the contractual agreement. With the help of such collaborative agreements, both the parties will be able to procure resources from each other, in order to achieve better research techniques. Such collaborative agreements would enable the parties to share their laboratory, skills, and techniques while manufacturing the drugs8.
Principal Benefits of Arbitrating Pharmaceutical Disputes:
Given the scope and size of the industry, the underlying disputes frequently involve high-value claims, which are multi-jurisdictional, and complex. As a result, parties frequently seek a confidential and swift resolution. The parties might prefer to use arbitration to settle their disagreements to avoid complex disputes. Such commercial arbitrations are now recognized as a viable and cost-effective dispute resolution option for pharmaceutical-related contractual disputes. Majority of such disputes, that arise between the parties, are resolved through arbitration, being an alternative mode of adjudication, without going through the rigours of national Courts.
There is no standard 'life sciences dispute' fact pattern. Disputes are often contractual, arising out of complex licensing or joint venture agreements. They may result from disagreements over the development, licensing, and marketing of a particular drug or product. Alternatively, they may be linked to change in control provisions resulting from a merger or acquisition and a shift in the new entity's priorities. In Les Laboratoires Servier v Republic of Poland9, for example, a dispute arose when Poland revoked Servier's marketing approvals upon Poland's accession to the EU. Other disputes may arise out of compulsory purchase arrangements, which prevent a drug company from setting its own prices.
Generally, an agreement to arbitrate can be made, when the parties are drafting the underlying Agreements, or when a dispute arises, and a separate arbitration agreement is signed. After that, the dispute is referred to an independent tribunal, which makes a final and binding decision. Arbitration can provide greater privacy protection without revealing important information about intellectual property rights and trade secrets to the public. Stakeholders are therefore more willing to arbitrate their disputes in a private setting to maintain confidentiality. Pharmaceutical agreements, in fact involves multiple jurisdictions and numerous stakeholders in addition to high-value claims due to their cross-border nature. As such the parties generally opt for Arbitrations, in order to settle their disagreements quickly and covertly, in order to minimise any potential harm to businesses. Recently, Mitsubishi Chemical Group (MCG), Japan, secured a victory after 4 years of a long International Arbitration battle in London against Novartis, a pharmaceutical giant based in Switzerland. The Arbitral Award procured by MCG entitled it to recover 126 billion yen ($935 million) in royalty from Novartis.
This shows the involvement of multiple jurisdictions with successful dispute resolution10.
Conclusion:
In light of the aforementioned reasons, arbitration seems to be a competent technique for resolving disputes in the pharmaceutical industry given the fact that the disputes are usually high-value and involve multi jurisdictions. In fact, arbitration offers a neutral platform and frequently permits the parties to maintain the confidentiality of the disputed subjects. The pharmaceutical sector, which is rife with international and multi-jurisdictional conflicts, relies heavily on arbitration. The arbitration agreements, which protect the consensual nature of arbitration, must be properly drafted in order to safeguard the arbitral process and the binding nature of the arbitral award for enforceability.
Footnotes
* Co-Authored by Astha Ojha, Partner Designate, Luthra and Luthra Law Offices India and Anand Kr. Maurya, Student of 5th Year, Chandigarh University & NALSAR University of Law, Hyderabad.
1. https://www.fortunebusinessinsights.com/impact-of-covid-19-on-pharmaceuticals-market-102685
4. Para 3, FDA Mission, https://www.fda.gov/about-fda/what-we-do
5. ICSID CASE No. ARB(AF)/12/_
7. https://pharmaceuticals.gov.in/industry-news/r-d
8. https://ultria.com/solutions/industries/contract-management-for-pharmaceuticals-old/
9. Case Number: II SA/Wa 838/13
Article written by Ms. Astha Ojha, Partner Designate, Luthra and Luthra Law offices and co-authored by Intern Mr. Anand Maurya.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
