LS&HC Horizons 2022 - Flipbook - Page 37
Hogan Lovells | 2022 Life Sciences and Health Care Horizons
37
Transactions
Application of ‘commercially reasonable efforts’ to
life sciences transactions and disputes
‘Commercially reasonable efforts’ clauses are frequently included in
licensing, distribution, and other life sciences contracts. These clauses,
like ‘best efforts’ and ‘reasonable efforts’ clauses, set a level of effort a
party is expected to exert in performing its contract obligations, such
as developing or commercializing products. As the Southern District
of New York recently reiterated in Alto v. Sun Pharmaceuticals
Industries, Inc., Case No. 1:19-cv-09758-GHW, 2021 WL 4803582, at
*41 (S.D.N.Y. Oct. 13, 2021), though, under New York law, “[t]here is
no settled or universally accepted definition of the term ‘commercially
reasonable efforts.”
Courts applying New York law, however, will enforce definitions
for ‘commercially reasonable efforts’ agreed by the parties. For this
reason, where the parties attempt to agree on a definition in their
contract, consider the following points:
• A
void inconsistent terminology (e.g., using ‘commercially
reasonable efforts’ and ‘best efforts’ for different obligations).
• W
here possible, include metrics such as minimum expenditure
requirements or other objective parameters.
• I f regulatory approval is required, specify what steps need to be
taken and any necessary timetables.
• I dentify any applicable objective industry standards against which
efforts will be measured.
• I nclude contract language stating that parties’ obligations extend
beyond just the specified metrics or parameters to all commercially
reasonable efforts to allow for flexibility.
• M
aintain a detailed record of the negotiation of the clause in case
of future disputes regarding its interpretation.
Defining ‘commercially reasonable efforts’ this way will help
provide predictability when performing under a contract
and in any potential dispute. However, in certain scenarios, it may be
in a party’s interest not to include such specificity in order to maintain
flexibility in how it meets its diligence obligations.
Ollie Armas
Partner, New York
Phoebe Wilkinson
Partner, New York
Sam Zimmerman
Senior Associate, New York
Irina Goga
Associate, New York
