The New Frontier: Contractual Protections for Cross-Border Strategic Alliances among CROs and Sponsors

Alexander WoollcottCo-Chair, Global Sourcing & Procurement PracticeMorris, Manning & Martin, LLP

THE FRONTIER Cross-Border CRO Alliances

• C-B Alliances offer significant potential value.

• Exceptional value usually comes with risks.

• Over time risks will abate but so will value.

• First movers have advantage, but higher risk. Solution is to mitigate risk.

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RISK MITIGATION IN CROSS-BORDERCRO ALLIANCES

• How do we maximize value while minimizing risks?

• Law alone does not afford sufficient protection.

• Contracts are the most powerful tool.

RISK MITIGATION IN CROSS-BORDERCRO ALLIANCES

CONTRACTUAL LINKS

CRO 3NonUS

CRO 2US

CRO 1US

CRO 4Non US

A

Subcontractorto CRO 3

SPONSOR

Subcontractorto CRO 3

BASIC PREMISES OF CONTRACTUAL RISK ALLOCATION

• Contract should directly address risk allocation.

• Risks should be germane to CRO activities.

• Risk should be borne primarily by responsible party.

• Some degree of shared risk is inherent to an alliance model.

RISK ALLOCATION PROVISIONS IN ALLIANCE CONTRACTS

• Clearly identify specific responsibilities of parties.

• Expressly assign risk to responsible party.

• Protect Alliance parties from risk they did not assume.

• Specifically address what happens when risk turns into actual loss to the Alliance or one or more Alliance parties.

REPRESENTATIONS

• What are they? Factual assertions the Alliance can rely on.

• Authority to enter into Alliance and perform responsibilities.

• Authority to sign Alliance documents.

• No conflicts with governance documents or other contracts.

• Enforceability of provisions.

WARRANTIES

• What are they? Interesting hybrid between factual statement and promise.

• Standard of professionalism.

• Adhering to “good clinical practices” or “best practices.”

• Meeting or exceeding Project performance metrics.

• Non-infringement.

REMEDIES

• Indemnification – private contractual remedy

• Claim for damages – lawsuit or claim

• Stipulated damages – pre-set penalty

• Termination – often the least desirable remedy

INDEMNIFICATION LIMITATIONS

• Threshold limitation.

• Maximum liability limitation.

• Insurance offset.

• Contributory fault reduction.

• Limitation on recovery for certain “losses.”

• Procedural requirements.

DAMAGE LIMITATIONS

• Threshold amount or “basket” to prevent “nickel and diming.”

• Maximum liability amount or “cap.”

• Limit certain categories of damages: indirect, consequential, incidental, punitive damages.

• Limitation inapplicable to certain types of wrongdoing and indemnification.

OTHER LIMITATIONS ON REMEDIES

• Cumulative or exclusive remedies?

• Offsetting damages.

• Limitations imposed by applicable law.

• Chance to cure before termination.

PROTECTING IP AND TRADE SECRETS

• What really is “intellectual property?”

• What are “trade secrets?”

• How are IP and trade secrets even relevant in a cross-border CRO alliance?

• Why is are IP and trade secrets at risk?

IP AND TRADE SECRET PROTECTION SOLUTIONS

• All Alliance members should be under mutual non-disclosure agreement (NDA).

• Alliance charter should have robust IP provisions to reinforce NDAs.

• Special case of IP owned by the Alliance itself.

CLOSING COMMENTS

• While cross-border strategic alliances among CROs offer significant commercial and financial rewards, risk must be managed carefully.

• Each of the major constituents (e.g. the CROs, the Alliance itself, the Sponsor) should engage experienced international counsel to protect against the risk faced by that constituent.

• The network of contracts governing the Alliance is the best vehicle for risk protection. Give it due attention.