Michael Frisby, Partner at Stevens & Bolton LLP, examines where legal disputes are likely to occur within the pharmaceutical industry.
The current economic environment has fuelled fears of recession and with it a rise in disputes. But where are disputes likely to arise for life sciences businesses and what can be done?
Issues within the supply chain
IP disputes with challenges to patents are well known areas of dispute for life sciences business, but often more routine commercial issues can give rise to potentially significant difficulties and disputes. For example, supply issues can often lead to disputes, as can the need to protect confidential information.
Supply issues pose a particular threat as they can arise at any time. However, with rising costs and inflation returning to economies across the world, the ongoing war in Ukraine, and sanctions in place against Russia, challenges are becoming increasingly common. These factors can result in difficulties in performance of contracts and where a contract might once have been profitable, economic and political conditions might now make them uneconomic, leading parties to seek termination, sparking claims of breach and for specific performance and damages, potentially leading to insolvency.
Key to dealing with supply issues is to ensure that the correct procedures are followed in the face of a counter-party that is acting in breach of contract. Too often, a wronged party will jump to terminate a contract incorrectly and in doing so, put itself in repudiatory breach. It then finds that the tables have turned and it is facing a claim for damages instead of pursuing one. Great care is needed for dealing with a potential termination. The contract itself will often set out the circumstances in which termination can take place, often for material breach. What is and is not material breach will largely depend on what the contract says and notice of breach may be required first. Common law rights of termination arise where a party is in repudiatory breach, but often, identifying whether a party is in repudiatory breach can be tricky. The steps taken for termination and the method used to bring a contract to an end can also have an impact on the innocent party’s right to damages. A holistic view of the contract needs to be taken.
Impediments on performance may trigger a claim for force majeure. Force majeure is a contractual remedy and is not available in common law. Clauses vary in terms but usually require notice to be given by the party that is unable to perform at the outset of the force majeure event and to keep the counterparty informed. Very often, this notice is not given and the consequence is that the benefit of the force majeure clause is lost.
Supply contracts can be time sensitive and of substantial value. A claim for specific performance might arise and it may not be commercially viable to await determination of the claim at trial or arbitration. In those circumstances, an application to the court or emergency arbitrator for injunctive relief can bring the dispute to a swift conclusion. It is key to successful applications to move fast and to be able to present a convincing argument as to why urgent steps are needed.
The need to protect confidential information is often a driver in disputes in the life sciences sector, given the nature of the business. It can arise in the context of departing employees, groups of employees, or in the context of a commercial joint venture. The law will protect information that has the necessary quality of confidence, was communicated in circumstances importing an obligation of confidence, and has been used in an unauthorised manner. However, arguments about whether these requirements have been met, and so meriting protection, are not always easy and can be finely balanced.
Restrictive covenants commonly arise in employment contracts and also in joint ventures. They can be very important for allowing breathing space to rebuild customer relationships in the aftermath of a change in personnel. Issues will often arise as to whether restrictions imposed by the relevant contract are reasonable and thus enforceable. Once again, there will be a need to act quickly, which may entail seeking injunctive relief. The key to dealing with any of these issues is to move fast and to take early advice.
Growing threat of class actions
Another risk area for life sciences companies is in the growing field of group redress and class actions. The claims are typically large– scale and high– value, and there is an infrastructure in place in the form of specialist claimant law firms and available funding to pursue such claims. There are different procedures available to bring group litigation (where unrelated parties sign up to bring claims against a common defendant on a common issue), or collective proceedings (both on an opt-in and opt– out basis). Collective proceedings are available for competition claims in the competition appeal tribunal. In theory, they are available for other types of claims in other courts but in practice, they are infrequently used given the requirement that all claimants must suffer the same loss.
The types of claims pursued in this way include competition, data breach, shareholder, commercial contract, consumer/ product liability, and ESG claims. Life sciences companies could, theoretically at least, face any of these types of claims.
Group actions are not new in life sciences. For example, follow-on damages claims for competition law breaches such as the claims against Servier arising from the European Commission’s findings on ‘pay for delay’ agreements brought by the English, Welsh, Scottish and Northern Irish health authorities and the Secretary of State for Health. They have also been seen in the Seroxat group litigation against GSK, the De-Puy metal– on– metal hip joint replacements, and PIP breast implants cases. What has changed is that there is now an appetite amongst funders and claimant lawyers to pursue group claims and class action.
The scale of risk of a class action case can be illustrated by the Merricks vs Mastercard case, a claim against Mastercard arising out of interchange fees charged by card issuers to retailers, which were often passed on to consumers. It is said the interchange fees were fixed in breach of competition law. This was on an opt-out basis so in other words, anyone who used a Mastercard in this jurisdiction in the relevant period was a claimant, unless they opted out. It has a class of approximately 45 million people and the quantum of claim is approximately £14 billion, with a claim value of about £155.80 plus interest for each class member.
Whilst not every business will face claims of this magnitude, claimant law firms with the backing of funders may view the life sciences industry as an attractive target.