Many life sciences contracts, including intellectual property licensing agreements, development agreements and supply agreements, contain force majeure clauses. Depending upon the language of these clauses, the COVID-19 pandemic may be an event that triggers these clauses and provides a defense to nonperformance of the contract. Companies that are experiencing difficulties complying with or enforcing compliance with their contracts should carefully examine their contracts to determine if a force majeure clause may excuse performance.
As COVID-191 continues to rapidly sweep the globe, government agencies at all levels are being pressed to take difficult measures to curb the spread of the virus. Such measures have included restrictions on travel and congregation that may create business disruption. For example, as of the end of March, 2020, more than 35 states have shelter-in-place rules covering all or part of the state.2 And, even in states or localities that are not subject to shelter-in-place orders, other factors, such as employee illness, concern about spreading the virus, reduced consumer demand, and supply chain disruptions, are making it difficult for businesses to carry on as usual.
Force majeure provisions seek to allocate the risk between the parties when an unforeseen event makes contract performance impossible or impracticable. Force majeure provisions often are included in life sciences agreements, and may be triggered by the occurrence of an event deemed beyond the control of a party. Typically, the agreement itself will specifically enumerate the events that may trigger the provision. For example, a force majeure provision of a license agreement between pharmaceutical companies may list the following triggering events: "fire, floods, embargoes, terrorism, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or any other Party." Business disruptions relating to the COVID-19 pandemic may arguably be considered within this language (e.g., labor disturbances, acts of God, or delays in acting by a government authority). Force majeure provisions should be examined closely as the triggering events may vary between agreements.
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Originally published 21 April 2020
Footnotes
1 https://www.who.int/emergencies/diseases/novel-coronavirus-2019
2 See e.g., Sarah Mervosh et al., See Which States and Cities Have Told Residents to Stay at Home, THE NEW YORK TIMES (Mar. 30, 2020), https://www.nytimes.com/interactive/2020/us/coronavirus-stay-at-home-order.html.
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