Arbitrating Cross-Border Disputes in Life Sciences

ARBITRATING CROSS-BORDER DISPUTES IN LIFE SCIENCES

Given The Nature of Disputes in The Life Sciences Sector, Institutional Arbitration Is, Thus, A Better Option for Dispute Resolution as Compared to Litigation Through Courts.

The Indian Life Sciences industry has experienced sustained growth over the last three decades.

Pharmaceuticals, medical devices, and healthcare are key contributors to this growth. The Indian pharmaceutical sector is expected to grow to US$ 100 billion by 2025 and medical devices to US$ 50 billion. With a large population, and well qualified and skilled pool of medical professionals, the future of the healthcare sector too is promising. The industry is also at the forefront of the defense against pandemic, and India aspires to be a vaccine provider for the world.

POTENTIAL FOR DISPUTES

The phenomenal growth in the Life Sciences sector wouldn't have been possible without foreign investment and cross-border collaboration. The businesses in this sector enter into long-term collaboration agreement covering the lifecycle of product-research and development (R&D), production, and marketing. Besides the typical disputes regarding fulfillment of contractual obligations, disputes in this sector often involve intellectual property (IP).

There is also potential for disputes regarding product liability, and allocation of risk and responsibility in that regard under the existing agreements.

INTELLECTUAL PROPERTY DISPUTES

Collaboration in the Life Sciences industry may take place through R&D agreement, agreement for exploitation of resulting product, and/or license for use of patents and trademarks. License to use patents, know-how or trademarks is almost always part of the collaboration between Life sciences' companies. Inevitably the dispute regarding the terms of the license and rights and obligations of the parties thereunder is often central to the controversy between the partners.

The question of arbitrability of such disputes, therefore, becomes important.

ARBITRABILITY OF IP DISPUTES

Upon review of Indian decisions on arbitrability of disputes, it appears that there are broadly three categories of disputes that are not arbitrable.

The first category is of subject matters and causes of action which give rise to right in rem i.e., the right against the whole world. For example, grant of probate to a will or other testamentary instrument. Such grant operates against the whole world and is binding on non-parties to the proceedings as well.

The second category is of those issues or disputes which pertain to sovereign function of the State, for example taxation or prosecution and punishment for criminal offenses. The adjudication of these disputes is exclusively within the jurisdiction of the concerned courts.

The third category includes those disputes which have been reserved for adjudication by the national court by law, for example matrimonial dispute or dispute in a tenancy protected by law.

As regards IP dispute, the courts have consistently held, to a greater degree of clarity in recent decisions, that only the grant of patent and registration of trademark are matters reserved for the designated Courts (or tribunals) to adjudicate. The grant of patent or registration of trademark creates a monopoly in favor of the grantee. These grants thus create right in rem and disputes concerning them are, therefore, not arbitrable. The court decisions are, however, quite clear that the disputes concerning subordinate rights arising from the grant of patent or registration of trademark are arbitrable and can be referred to arbitration. There is no bar against arbitration of issues arising in relation to license to use patent or trademark, or against unauthorized use of intellectual properties beyond the terms of license, and other violations of the provisions of such agreements.

ADVANTAGES OF ARBITRATION

The companies in the Life Sciences sector increasingly prefer institutional arbitration as the mechanism for resolving disputes and differences. Joint ventures and collaborations in this sector are often long term, and preservation of relationship is of common interest to the parties. Institutional arbitration requires cooperation between the parties; it is generally less hostile and adversarial as compared to the court process. It is, therefore, better suited for such relationships. Institutional arbitration is also preferred by the parties for the assurance of confidentiality that it offers, and for the autonomy accorded to the parties in selection of arbitrators and the seat of arbitration.

CONFIDENTIALITY

Arbitration of disputes in this sector may likely involve sharing of proprietary and commercially sensitive information as evidence or as a part of submissions. Parties, therefore, have a common desire to ensure confidentiality of the proceedings. They can achieve it by selecting an arbitral institution that has a robust confidentiality regime in place including adequate provision in its rules. Additionally, they can also provide for confidentiality obligation in the arbitration agreement itself. In comparison, litigation through the court system tends to be porous and less secure, and the parties have no control over it.

QUALIFIED TRIBUNAL

Disputes in this sector, particularly those arising under the R&D agreement, patent license and failure to comply with contractual standards and specifications tend to be highly technical and complex. Domain knowledge and expertise of the adjudicator is, therefore, crucial for fair adjudication. Unlike the court process, arbitration permits the parties to ensure that a well-qualified tribunal adjudicates the dispute. Parties can achieve that by providing for qualification of the arbitrator in the arbitration agreement itself, or by selecting a qualified arbitrator while exercising the right of nomination.

ONE FORUM FOR MULTI-JURISDICTION DISPUTE

Collaboration in the Life Sciences sector often takes place through multiple agreements for different aspects of the business and may span multiple jurisdictions. In such a scenario, enforcement of the contract through courts may require multiple proceedings, and possibly recourse to competent courts in different jurisdictions. The resulting judgment is difficult to enforce in another jurisdiction unless reciprocal arrangement exists between the country where judgment was rendered and the country where it is being enforced.

Arbitration rules of leading institutions enable parties to consolidate claims and causes of action under related agreements. Thus, parties can consolidate proceedings under related agreements and enforce their respective rights through one proceeding before one forum rather than through separate action in each relevant jurisdiction.

Difficulty in enforcing a decision is also adequately addressed by the New York Arbitration Convention (the Convention). The Convention provides excellent framework for enforcement of foreign award and referral to arbitration. The Convention requires a contracting state to apply its provision for enforcement of an award made in another contracting state, and its courts to mandatorily refer parties to arbitration if the matter before it is covered by an arbitration agreement parties have made. The Convention allows limited grounds for declining enforcement and for rejecting a request to refer to arbitration. Over 160 countries (including all major economies) have ratified the Convention, it therefore has wide coverage.

CHOICE OF SEAT

Parties have the freedom to designate the seat of the arbitration. The choice of seat of arbitration also operates as choice of curial court of the arbitration. So, the parties can seat the arbitration in a jurisdiction where the courts are more supportive of arbitration and lean in favor of Arbitrability of IP disputes.

Given the nature of the disputes in the Life Sciences sector, institutional arbitration is, thus, a better option for dispute resolution as compared to litigation through courts.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.