The life sciences sector is booming. In the US alone, life sciences venture capital deal volume increased by 500 per cent within the past 10 years. This is accompanied by significant growth in B2B disputes between life sciences companies. The unique features of the life sciences industry are particularly well-suited to arbitration, and companies in the industry are increasingly resorting to international arbitration to resolve their contractual disputes.
Growth of the life sciences sector and related disputes
The life sciences sector has been experiencing impressive growth since before the COVID-19 pandemic. In 2003, the market value of the global pharmaceutical industry was approximately US$462bn. By 2015, it had more than doubled to US$951bn. The pandemic has further accelerated this growth: annual investment in biotech companies reached an all-time high of US$105bn in 2021.
The rapid growth in investment in the life sciences sector is accompanied by a corresponding growth of related disputes, many of which are resolved in arbitration. This increase in life sciences arbitrations has been augmented by a general trend of eliminating ‘carve-outs’ in arbitration clauses for disputes relating to IP rights.
Most major arbitral institutions have reported significant growth in the number of life sciences cases. For example, in July 2022, the International Chamber of Commerce reported a 50 per cent increase in the life sciences arbitrations it administers. The London Court of International Arbitration reported that healthcare and pharmaceuticals represented the eighth most common type of dispute by industry sector of its caseload in 2021. In 2020, there was a 34 per cent increase in the number of healthcare-related and life sciences cases filed with the American Arbitration Association-International Centre for Dispute Resolution, following a 40 per cent increase in the number of life sciences cases filed with the institution in 2019.
Life sciences disputes are well-suited to arbitration
The key features of the life sciences sector make disputes between life sciences companies well-suited to international arbitration. These features typically include the following.
- Cross-border, multi-year joint ventures or collaborations between various types of businesses (such as biotech companies, pharmaceutical companies, manufacturers and distributors).
- Confidential and valuable know-how and IP rights, and contract terms.
- Inherently risky, expensive and time-consuming research and development to bring products to market.
- Potentially enormous payouts for successful products.
Arbitration has at least four key advantages when it comes to resolving life sciences and biotech disputes.
- Confidentiality: Due to the often-confidential nature of the IP and know-how at issue and/or the contractual and economic terms governing the license, collaboration or other contractual arrangement in dispute, life sciences companies may have a strong interest in keeping confidential the details and even the existence of a dispute. Unlike judicial proceedings in most jurisdictions, private arbitral proceedings and the evidence exchanged therein can be kept confidential.
- Decisionmakers with industry expertise: While judges in domestic litigation usually are randomly assigned to cases and may not always possess specialised knowledge of a particular industry and its customs, parties to an arbitration can choose the arbitrators who will decide the outcome of their dispute. Thus, life sciences and biotech companies can select arbitrators with specific scientific and industry expertise who understand the nature and context of the disputes and can more easily navigate the evidence put forward by the parties to a dispute.
- Narrower scope of evidence collection: Typically, the scope of evidence collection is significantly narrower in arbitration than in litigation. In most arbitrations there will be a lower risk of expansive document production, and company executives are less likely to be subject to discovery devices that exist in some jurisdictions, such as depositions in the US.
- Limited scope for appeal and facilitated cross-border enforcement of awards: Arbitration awards are subject to limited judicial review and can be more easily enforced abroad than a court judgment. The New York Convention provides for enforcement of arbitration awards in more than 160 signatory States. For life sciences companies that have cross-border commercial arrangements with counterparties around the world, international arbitration provides an effective mechanism to obtain enforceable awards.
We expect this trend to continue as the life sciences sector maintains its key role in the global economy amidst new developments in the prevention and treatment of illnesses, disruptions in global supply chains, and macroeconomic tensions. Given the real risk of disputes, life sciences companies should pay special attention to including efficient dispute resolution clauses in new contracts to ensure that their needs will be served should disputes arise.