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 risk to potentially significant difficulties and disputes. For example, supply issues can often give rise 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 coming back into economies across the world, 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 to terminate, sparking claims of breach and claims 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 counterparty that is acting in breach of contract. Too often a wronged party will jump too hastily to terminate a contract incorrectly and in doing so put itself in repudiatory breach and finds that the tables have been turned and it is facing a claim for damages instead of pursing one. Great care is needed in dealing with a potential termination. The contract will itself often set out the circumstances in which termination can take place, often for material breach. What is and is not material breach will depend in large part 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 identifying whether a party is in repudiatory breach or not can often be tricky. The steps taken on 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 at common law. Clauses vary in their 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 with the consequence 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. Key to successful applications is 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 or 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 are 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 in allowing a breathing space to rebuild customer relationships in the aftermath of a change in personnel. Issues will often arise as to the reasonableness and thus enforceability of restrictions imposed by the relevant contract. Once again, there will often 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. They are in theory available for other types of claim in other courts but in practice little used given the requirement that all claimants must suffer the same loss.
The types of claim pursued in this way include competition claims, data breach claims, shareholder claims, commercial contract, consumer/product liability claims and ESG claims. Life sciences companies could, theoretically at least, face any of these types of claim.
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 Commissions 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 actions.
The scale of the risk of a class action can be illustrated by the Merricks v 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. Brought on an “opt-out” basis – in other words anyone who used a Mastercard in this jurisdiction in the relevant period is a claimant, unless they opt out. It has a class of approximately 45 million people and the quantum of claim is approximately £14bn, with a claim value of about £155.80 plus interest for each class member.
Not every business will face claims of this magnitude but beware, claimant law firms with the backing of funders are looking for claims and life sciences companies are an attractive target.
This article was first published in Drug Discovery World and can be accessed here.