Resolving Life Sciences Disputes Beyond the Courts

By Isha Singh, WIPO Arbitration and Mediation Center

The life sciences industry, with an estimated collective value of USD 2.83 trillion in 2022, is an innovative and dynamic sector covering the development of life-saving medical products such as therapeutics, vaccines, diagnostics, and medical devices.

The process of ensuring these medical technologies reach the public involves a number of deals and partnerships between different market actors. These include agreements on licensing, collaborative research, and development (R&D), and acquisitions, which are underpinned and governed by multiple and often intricate contracts.

Given the nature of deal-making strategies within the life sciences sector, disputes are frequent and often complex and highly technical. They usually center around regulatory issues, commercial claims such as, royalty fee payments, product liability, or failure to meet contractual milestones and valuable intellectual property (IP), including trade secrets. These disputes may also involve interlinked and parallel court proceedings in several countries. As such, they are often expensive and disruptive to business objectives, impeding R&D, clinical trials, manufacturing, and commercialization of vital medical products.

Innovation and technological transformation are core to most life sciences partnerships, […] making the sector more prone to disputes than others.

Alternative, out-of-court dispute resolution procedures, like mediation and arbitration, however, offer practical, time- and cost-effective options for resolving existing disputes and catalyzing contract negotiations within the sector.

The nature of life sciences disputes

Innovation and technological transformation are core to most life sciences partnerships. Such dynamism introduces an element of risk and uncertainty to these projects, especially in relation to data management, IP protection and product liability, making the sector more prone to disputes than others.

The most common disputes within the life sciences arise in relation to failed joint ventures for an experimental drug, breach of contract, unauthorized use of third-party IP rights and wrangles over which party is responsible for inventing a given product.

Disputes may relate to both contractual and non-contractual issues.

Disputes relating to contractual issues

Contractual issues primarily depend on the commercial arrangements in place between the parties, for example, in relation to manufacture/ supply chain or distribution agreements. Such disputes typically relate to regulatory approval of medical technologies, failure to meet delivery commitments, or conflicts relating to where licensed products are to be distributed.

Disputes may also arise from:

• technology transfer or licensing agreements in relation to royalty rates and payments, the IP rights surrounding an improved version of a licensed product, or whether a particular use of the licensed product falls within the scope of the contract;
• mergers and acquisitions, which may involve issues relating to the non-disclosure of material information that might influence the buyer’s decision; and
• joint drug development agreements that give rise to indemnity claims for failure to meet contracted project timelines and expectations.

These disputes may emerge at any stage of the business relationship, for example, during the negotiations phase, upon concluding the agreements, or even during their operational phase because of non-adherence to the obligations underlying these agreements.

Non-contractual issues

Non-contractual issues primarily relate to infringement claims. For instance, if pharmaceutical company A utilizes proprietary information belonging to pharmaceutical company B to create or market a similar or new medical product without the authorization of pharmaceutical company B.

Managing Disputes in the life sciences sector

Against this backdrop, an increasing number of stakeholders within the life sciences sector see mediation and arbitration useful alternatives to court litigation for a variety of reasons. These include:

• the privacy and confidentiality of proceedings;
• the ability to choose a mediator or arbitrator with specialist knowledge of the life sciences;
• the flexibility to narrow the scope of issues to be determined;
• greater control by the concerned parties over the process;
• a single international neutral forum providing for a holistic resolution of the dispute, without the involvement of the national courts of either party, thereby avoiding expensive litigation in foreign courts;
• mediation, in particular, allows parties to renegotiate agreements, thereby prioritizing current business needs and restoring trust among parties without getting bogged down in lengthy legal processes.

Many national courts have recognized these benefits. For example, courts in China have referred several life sciences patent and trademark infringement cases to WIPO Mediation. More recently, courts in France have also been encouraging parties to attempt mediation at the outset or in the course of court proceedings.

The growing popularity of mediation and arbitration among life sciences actors

The growing popularity of mediation and arbitration within the life sciences is reflected in the number of such cases filed with the WIPO Arbitration and Mediation Center (the WIPO Center). Almost 15 percent of the Center’s cases involve parties from the life sciences. A majority of these disputes relate to contractual claims.

While most actors in the life sciences prefer to keep their dispute resolution policies confidential, some have made their use of these alternative dispute resolution (ADR) practices public.

For example, more than seventy (70) licensing and sub-licensing agreements concluded by the Medicines Patent Pool (MPP) include WIPO mediation or arbitration clauses. These agreements include life sciences actors from over twenty-five (25) countries, such as originator and generic pharmaceutical companies, public agencies and governments of countries having access to licensed products, and other global health stakeholders.

The Foundation for Innovative New Diagnostics (FIND), the global alliance for diagnostics, has a similar approach. Maica Trabanco, Senior Legal Manager at the Foundation suggests that mediation and arbitration support its mission to ensure equitable access to reliable diagnostics globally.

“As a contracting organization, we use standard commercial agreements tailored to global health needs in the non-profit context,” she says. “Our contracts are often complex, involving various stakeholders, such as companies and academic and national public health institutions in developed and developing countries. In 80% of our contracts, parties based in Europe, Africa, and Asia include WIPO Mediation clauses followed by WIPO Arbitration.” The WIPO Center provides an international neutral forum to resolve and manage potential disputes without court intervention while offering greater certainty over where, when, and how disputes will be resolved,” she concludes.

Deal mediation

Mediation can serve as a tool to resolve existing disputes and can also to facilitate contract negotiations between parties interested in long-term collaborations (deal mediation).

For example, parties may jointly appoint a mediator with relevant expertise during the deal-negotiation phase to help the parties identify their reasons for entering the collaboration and to assess their respective business interests and expectations in the commercial venture. The mediator may also assist the parties in determining the scope and use of the confidential information revealed during the negotiations and help them to conclude a formal contract. The same mediator may also be appointed to resolve any future disputes between the parties without risking any adverse publicity, which would likely be unavoidable in a court hearing.

Mediation can serve as a tool to resolve existing disputes and can also to facilitate contract negotiations between parties interested in long-term collaborations.

Since 2022, the WIPO Center has been offering tailored deal mediation for life sciences disputes. Deal mediation was developed under the WIPO COVID-19 Related Services and Support Package, to help countries address COVID-19 pandemic economic recovery. The WIPO Center has seen a rapid increase in the use of mediation to facilitate contract negotiations, helping parties minimize disruption to their long-standing business relationships.

An Example of deal mediation

A recent WIPO Mediation involved a European university holding pharmaceutical patent applications in several countries and a pharmaceutical company. The parties entered into an option-to-license agreement, which the pharmaceutical company opted to exercise. The parties began negotiating a licensing agreement but could not agree on the terms of the license. After three years of failed negotiations, the parties jointly requested WIPO Mediation. A single session with the mediator allowed the parties to identify relevant issues and underlying mutual interests. This enabled them to reach a settlement agreement.

Speaking after the Mediation with the permission of the parties, the mediator in the case, Sally Shorthose, Partner, IP and Life Sciences, Bird and Bird, London, highlighted two other significant benefits that mediation can bring to the resolution of life sciences disputes:

“As for the choice of mediator, you are not bound to a particular list or type of person; it could be someone who is experienced in licensing, an economist experienced in working out royalties, even a scientist who really understands the science behind the dispute or someone who has actually been involved in collaborations and knows what “commercially reasonable efforts” in a contract actually should comprise.”

“Another beauty of mediation is that it is a quick process that can be explored before proceeding to the next stages of a dispute resolution process, and is cheaper than international arbitration, particularly in the context of the costs involved in appointing and briefing a tribunal of three arbitrators.”

Some final thoughts

During the COVID-19 pandemic, demand for related safe and effective medical interventions and know-how rose dramatically. In response, stakeholders within the life sciences sector are redoubling their efforts to optimize public health ecosystems and pharmaceutical supply chains through a range of new collaborations and partnerships. In the face of the world’s health challenges and the operational and financial risks associated with the sector, the need for efficient dispute resolution tools is ever more acute.

Embedding carefully drafted and tailored dispute resolution clauses into a life sciences transaction can support the effective management of disputes in this field.

In this context, embedding carefully drafted and tailored dispute resolution clauses into a life sciences transaction can support the effective management of disputes in this field. Alternatively, without any prior agreement or dispute resolution clause in existing contracts parties to life sciences disputes may enter submission agreements to refer disputes to ADR after the dispute has arisen. In this way, they can reduce the time, costs and resources associated with managing multiple court proceedings.

The WIPO Center is available to assist parties with negotiations surrounding life sciences agreements by drawing on its list of neutrals specializing in life sciences from over 90 jurisdictions. More information regarding the WIPO Center’s services is available online, and any questions can be emailed to arbiter.mail@wipo.int.