Arbitration as an Alternative to the Backlogged Courts for the Life Sciences Industry

Arnall Golden Gregory LLP
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COVID-19 has disrupted everything, including litigation. Courts have been forced to delay in-person hearings and trials for a year or more, causing a backlog of varying degrees across the country. For civil disputes, the backlog is greater. Criminal cases, with the constitutional requirement to a speedy trial, must be heard first. Only now are courts beginning to resume hearings and trials and even that is only in certain jurisdictions. But business disputes have not slowed. If anything, they have increased during this tumultuous time. Companies need timely resolution of those disputes to avoid piling on to other unavoidable and undesirable uncertainty caused by the pandemic.

An alternative is arbitration. Arbitration has long been recognized as a faster alternative to litigation. Although party tactics sometimes slow the process, arbitration still provides resolution more than one year sooner on average than trial through the court systems (even before the pandemic-created court backlog). Further suiting arbitration to the current environment is that arbitration is meant to be flexible. It had embraced remote options well before COVID travel restrictions and lockdowns. Although many courts have endeavored to adopt remote technology over the past year, it was already common practice in arbitrations to use video-conferencing for hearings and witnesses. Disputes in arbitration can avoid the learning curve associated with implementing new procedures and technology.

For the life sciences industry specifically, the often global nature of the disputes lends it particularly well to arbitration. As one of the most significant sectors in the global economy, cross-border relationships (and disputes) are commonplace. For example, global pharma revenue from 2019 alone totaled US $1.25 trillion. Everything from pharmaceutical manufacturing to clinical trial enrollment involves cross-border cooperation and commercial agreements. COVID-19 has heightened certain global trends in the life sciences industry, including long-term collaborations between companies in different countries. When disputes arise, they often involve companies in different countries.

For international commercial disputes, arbitration has become the default. The primary reason is the ease of enforcing an award throughout the world. There is little benefit to winning in court if one cannot collect on the judgment. International arbitration addresses this concern. One hundred sixty-eight countries are signatories to an international treaty, the New York Convention, through which each has agreed to enforce an arbitration award issued in any other signatory country. The grounds for challenging an award are limited and, on their face, prohibit any merits-style appeal of the arbitral award. Court judgements do not receive the same deference and often invoke lengthy domestication proceedings for enforcement in other countries.

Also, life sciences disputes regularly involve specific expertise, whether in scientific, regulatory, or overall industry knowledge. Arbitration offers parties the ability to select arbitrators with experience and credentials tailored to the needs of the dispute as opposed to court, where judges are randomly assigned to cases and are often generalists, hearing everything from death penalty cases to consumer complaints. Further, several arbitral institutions offer specific expertise in life sciences.

Other benefits to arbitration, including international arbitration, include:

  • Flexibility in discovery and motions practice to meet the needs of the dispute instead of being fixed in, for example, the Federal Rules of Civil Procedure;
  • Flexibility in the timing for resolution, with most arbitration institutions now offering expedited rules for a faster resolution than even non-expedited arbitration (which, as noted above, still averages resolution a year faster than courts, even before the COVID backlog); and
  • Confidentiality of the dispute by default, as opposed to every filing being available on a public docket, often accessible electronically by anyone with internet access.

One other benefit of arbitration is the agreement on a location, which precludes the often lengthy fights over personal jurisdiction and venue that can occur in court. This is especially useful for international disputes, in which one party would necessarily be forced to either sue in a foreign court or ask its country to exercise jurisdiction over a foreign business. Either situation raises several concerns that are beyond the scope of this article, but which can raise meaningful challenges to achieving resolution. With the parties having agreed on the place of arbitration, there is no dispute over a court’s jurisdiction. Further, parties can often avoid travel costs entirely. Arbitrations can be, and frequently are conducted entirely remotely, with the selected place of arbitration serving only to provide the procedural rules for the arbitration (e.g., the jurisdiction and law to confirm an issued arbitration award).

Generally, parties agree to arbitrate disputes by including an arbitration provision in the broader contract governing the relationship of the parties. However, given the COVID-exacerbated court delay, as well as the enforcement benefits and technical expertise available through arbitration, parties may wish to opt for arbitration, even without the already agreed-upon arbitration clause. Companies have that option. Parties can agree at any time to arbitrate a dispute, even if a lawsuit has already been filed. Usually, agreement to arbitrate is less likely to happen after the dispute arises, largely because parties are hesitant to agree on anything once they are in an adversarial posture. But, in the current climate, post-dispute decisions to arbitrate will likely become more common. Most arbitral institutions provide standard clauses for arbitration by agreement at any phase of a dispute, and courts are generally glad to stay or close proceedings pending arbitration, especially in the current, COVID-overladen system.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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