29 六月 2020
Synapse - June 2020 – 4 / 6 观点
Over the last few years, we've noticed a clear increase in the number of non‐patent life sciences disputes that we handle for clients that are resolved through arbitration, suggesting its increasing popularity when compared to court litigation. Here, we set out some of the reasons why arbitration can be an attractive alternative for life sciences companies when resolving their contract disputes.
For arbitration to arise, the contract parties need to agree to submit the dispute to arbitration through a valid arbitration agreement. In the context of English law, that agreement must be made or evidenced in writing, and will typically be a clause within a commercial contract. However, it can also take the form of a separate agreement, or drafted and agreed to after the dispute has arisen.
While the drafting of an eﬀective dispute resolution mechanism in a contract is a topic in itself, clarity and thoroughness are key. Getting it wrong can have serious consequences for commencing arbitration, or its progress once commenced. If arbitration is being considered, the provisions in English law contracts should be detailed, specifying what subject matter or types of dispute can be submitted for arbitration, what (if anything) can be submitted to the courts, whether the arbitration should be "ad hoc" or governed by one of the well‐known arbitral bodies' rules, how the arbitral tribunal is appointed and composed, whether there is an escalation process before anyone can start arbitration and so on.
The chosen seat of the arbitration is also an important consideration when drafting an arbitration agreement. The seat is not necessarily the same as the location, particularly in the international context, whether these issues are important depending on where the parties are based. The seat of the arbitration is the geographic location to which the arbitration is tied legally. Under English law, the procedural law and framework is the law of the seat, including access to the local courts for emergency or interim relief (such as injunctions), challenges to the jurisdiction of the tribunal and any challenges to the arbitral award itself.
For well‐established common law jurisdictions such as England and Singapore, which are chosen as the seat, parties can have the benefit of a robust, pro‐arbitration regime, with the courts reluctant to intervene unless absolutely necessary. By contrast, the location of the arbitration may be entirely a matter of practical choice – it is entirely possible to hold final hearings in a location that is convenient to the parties, even if that is not the seat of the arbitration.
In a vast number of commercial disputes involving life sciences companies, arbitration can have a number of advantages, as well as some disadvantages, which we summarise below.
Although a generalisation, arbitration can be cheaper than court litigation, even though parties do not pay for the hire of the court facilities or pay judges' fees. While the parties have to share the costs of paying the arbitrator (or arbitrators, if a panel), and administrative fees (if an arbitral body is administering the arbitration), generally, arbitrations can be heard quicker than in court, which reduces costs.
Arbitrations also typically oﬀer finality, whereas appeals (with consequent costs) are possible in court, and sometimes more than once. The arbitration procedure is generally more streamlined – particularly around disclosure of documents which can be much less onerous than in court, which comprises a large part of the overall litigation costs. Of course, the less robust case management can also mean that parties (often the respondent) can drag out arbitration in a way that might not be tolerated by a court.
As the parties have an arbitral tribunal for their arbitration, subject to the tribunal's availability, again as a generalisation, arbitrations can be quicker than court, when one is competing with all the other litigants for the courts' finite resources.
A primary benefit is that the arbitration process is private and confidential. There are no public hearings or publicly available documents like there are in court litigation in some jurisdictions. The issues that arise in life sciences disputes tend to involve the consideration of highly sensitive confidential commercial information, including:
There is an inherent interest in resolving disputes concerning these matters privately. The general principle of open justice applies to court proceedings, unless hearings are sought to be held in private, and even though one of the grounds for seeking that is that it "involves confidential information (including information relating to personal financial matters) and publicity would damage that confidentiality" in commercial cases it is very rare that the courts order private hearings. Otherwise documents and witness statements referred to in hearings, and pleadings, are all publicly accessible.
There are few restrictions on this; even though disclosed documents cannot be used for a collateral purpose outside of the litigation in which they are disclosed, they are still public if they are referred to in open court. Even in response to the COVID‐19 situation, where remote hearings will be required, many of which will by their nature be private, recordings will be required and made publicly available, and the media invited as appropriate.
Equally, the lack of publicity may be a disadvantage for smaller life sciences companies. As is often the case in this sector, larger pharmaceutical companies supplement their development pipeline by licensing and partnering arrangements or acquiring technology from smaller research‐focussed life sciences companies.
In these circumstances, if a dispute does arise, the larger pharmaceutical company may not want to be shown in public to be a diﬃcult partner for smaller companies to engage with – as this may damage its ability to do further deals with other counter‐parties looking to licence their technology.
As such, the court of public opinion can be a very significant tool in the smaller company's toolbox, so there can be a significant incentive for smaller less well capitalised companies to seek to provide in their contracts with larger pharmaceutical partners that the parties will resolve their disputes through the courts rather than through arbitration. Of course, the choice of litigation or arbitration will be the subject of negotiation, and to some extent, which side has the greater bargaining power.
There are of course aspects of licensing and partnering agreements that both parties will want to keep confidential, such as the therapeutic target that the parties are focusing on, and the commercial terms of the deal (especially where the deal relates to a platform technology where the licensor might be granting licences on diﬀerent terms to diﬀerent partners).
However, it is worth considering the issues that are most likely to be disputed in the context of a life science partnering agreement and in particular the likely timing of such a dispute in the context of the development programme, in order to determine whether the confidentiality provided by arbitration provides any benefit over and above court litigation.
The issues where disputes typically arise under a partnering agreement include whether a development partner has used the required level of diligence to further develop the programme, whether a particular development milestone has been met, whether a royalty is due on the sale of a particular product or whether exploitation in a particular field of use falls outside of the licensed field of use.
Regarding the details of the programme, the only one of these issues that is likely to arise prior to the nature of the programme becoming publicly known (typically through patent filings, clinical trials applications or clinical study reports – which are required to be published) is whether or not a party has used the required level of diligence.
So, in practice it may be that a party will need to weigh up the benefits of secrecy against the benefits of subjecting its commercial partner's conduct to public scrutiny.
Where the financial terms of the deal are concerned, typically both parties will want to keep these private. While it might be possible to apply to have aspects of the dispute heard in private, that is rare, and so careful consideration should be given by the parties to whether this important factor favours arbitration.
Parties are unlikely to submit to arbitration where there is an allegation of infringement of intellectual property rights (IPR) unless there is a pre‐existing arbitration agreement. However, as an interesting aside, whether or not a licensee is acting outside the scope of its licence (ie infringing the IPR of the licensor) is something that can be the subject of arbitration, and licence agreements can and do contain arbitration clauses. That said, once infringement of an IPR is brought into the scope of the arbitration, say in the context of a licence dispute, this might also bring validity of the relevant IPR into the scope of the arbitration.
As mentioned before, any civil matter can be arbitrated and patent infringement and validity is no exception to this rule, but this is a complex area. In some countries, patent disputes are arbitrable, whereas in others national patent law might prohibit issues of patent infringement or validity being determined through arbitration or only allow arbitral decisions to be eﬀective as between the parties.
In a UK context, validity can be dealt with in arbitration but the tribunal award cannot aﬀect the patent register. The arbitral award is as between the parties, and the patentee would have to agree to amend the patent register (eg amend the claims, surrender the patent or consent to its revocation).
A related issue to confidentiality is lack of precedent in arbitration. Parties may be concerned that, even though many cases are fact‐sensitive, court resolved disputes arising out of a particular development programme may lead to a public judgment that then impacts other proceedings, or other programmes. Arbitral awards, however, cannot set a precedent.
One of the attractions of arbitration is its flexibility. The parties are free to decide how many arbitrators, and of what sort (lawyers, industry experts, nationalities etc) hear the case, the seat of the arbitration, the venue, the language, and whether or not an appeal might lie against an arbitral award.
In life sciences disputes, being able to choose a subject matter expert as arbitrator might be a major benefit, when compared to court proceedings, where the relevant judge may not have heard many life sciences cases. In a number of the life science arbitrations we conduct, there can be an IPR or technical element and a commercial element. There may be issues around the coverage and duration of a patent and whether technical or regulatory milestones have been met as well as contractual and commercial issues, such as interpretation of the contract, contractual and equitable defences, and complex royalty or damages calculations.
In a three‐member tribunal, composed (for example) of a patent licencing expert, a former commercial director in a life sciences company in the relevant field and a senior lawyer (such as a QC) or retired judge, the parties get a set of decision makers with a blend of diﬀerent yet complementary skills and experience.
Flexibility also plays in to case management. In English court proceedings, the directions to trial are set by the court at a case management conference (though parts of the directions may be agreed by the parties prior to the hearing). In arbitrations, the parties generally have a higher degree of autonomy on agreeing and drafting their procedural orders, with little tribunal intervention unless a particular point cannot be resolved.
One major advantage of the flexibility of arbitration is that the parties can agree to draw various diﬀerent disputes, under various diﬀerent agreements, and across various national borders, into the same set of arbitration proceedings.
In the life sciences sector in particular, multiplicity of court proceedings in diﬀerent jurisdictions can arise, with the consequential delay, substantial costs and risk of conflicting judgments, all of which can be avoided through arbitration.
Finally, the logistics and practicalities of conducting the arbitration can be designed by the parties in a way that is not currently possible in court litigation. One example is the use of video hearings. While these are becoming more common, slowly, in the English court system, parties to arbitration can draw on whatever private resources they need, in purpose built arbitration centres, or their own in‐house capabilities. Given the travel restrictions and preference for virtual meetings in the COVID‐19 landscape, this may make arbitration more popular.
Many life sciences disputes are cross‐border, with contract parties in two or more jurisdictions. Arbitration lends itself well to this, as arbitral awards are generally easier to enforce across borders than national court judgments. Awards are enforced by national courts under Convention of the Recognition and Enforcement of Foreign Arbitral awards (commonly known as the New York Convention), to which currently more than 150 states are party. National courts are only permitted to set aside an arbitral decision under the Convention in very limited circumstances.
A New York Convention award is recognised as binding on the persons as between whom it was made, and a local or foreign court will give it recognition on production of the award itself and the original arbitration agreement. It diﬀers from the typical situation on cross‐border enforcement of a court judgment which usually requires the judgment creditor to register the foreign judgment before it can be enforced.
We may see an increase in arbitration as a result of Brexit, depending of course on exactly what happens during and after the transition period. Currently, at least within the EU, there is EU law which has a direct eﬀect in England (and other Member States) concerning important issues such as contractual governing law, non‐contractual (ie tort) governing law, which courts have jurisdiction over disputes, recognition and enforcement of judgments, and service of court proceedings.
As an example, at the moment, it is relatively straightforward to take a court judgment from one EU country, register it elsewhere in the EU and enforce it as if it was a judgment of the local court.
However, if English judgments were not recognised and enforced after Brexit, it could mean starting fresh proceedings in each of the relevant EU countries on the English judgment, which would be time consuming and costly.
To take another example, EU law also provides simplified processes for service of court proceedings. At present, there is no need for permission from the court to serve proceedings in the EU where England has jurisdiction under the relevant EU Convention. A similar exemption exists under Lugano. Were the UK to leave the EU and not accede to Lugano, the parties would need to apply for permission from the court to serve court proceedings in EU Member States, as they do at present where they want to serve on parties in non‐EU countries.
They have to meet various legal tests before they get permission, including whether there is a good arguable case that the claim falls within one of the "jurisdictional gateways" in the English procedure rules, whether the claim has reasonable prospects of success, and whether England is the proper place to bring the claim. All of this would add time, cost and complexity. Appointing an agent for service of court proceedings in the contract might be an answer.
All of the above post‐Brexit uncertainty may well be avoided by choosing arbitration, which is a wholly private dispute resolution mechanism, which bypasses the court system.
The more informal atmosphere and cooperative nature of arbitration, together with its built‐in flexibilities described above, means that settlement of disputes is common, and business relationships have a good chance of being preserved, in a way that is less obvious in hard fought, public litigation. That is an important concern in the life sciences sector, where collaboration and inter‐ dependence is common.
A version of this article first appeared in the May 2020 edition of the PLG Journal.