Thanks To ExL For Another Great Due Diligence Summit!

Day 1 of the Summit was informative and the speaker line up was impressive.  I would especially like to thank Jack Swig from North Shore InnoVentures Incubator for inviting me to run his workshop with him. I’ll be blogging about some of the data from the other presenters that I found most interesting and include a link to my own presentation below.

Legal and Contracting Strategies That Maximize Partnerships and Ensure a Successful Due Diligence Process: Contracts Associates eXl Due Diligence Seminar 2015

One “contracting strategy” that is worth mentioning here, but was not part of my presentation, was Astra Zeneca’s Carl Jessop’s plea to innovator companies: “Please, never sign long-term contracts with your suppliers!” Apparently AZ has its own suppliers, thank you anyway.

The Affordable Care Act – In One Act

We have been asked what might the effect of the US Supreme Court’s upcoming decision on the Patient Protection Affordable Care Act of 2010 (PPACA), might be on our clients. The sections of the law that most impact clinical site and vendor agreements are: 1) Section 6002 which requires industry to report to CMS any payments or other transfers of value they furnish to physicians and teaching hospitals, and 2) the Medicare Secondary Payer Rule for reporting payments for treatment of study subject injuries.  As an industry, we have no way of knowing what effect the outcome of the SCOTUS decision will be but we’ll be paying attention to the impact it will have on these two requirements, specifically.

The US Health and Human Services website has a nice snapshot of PPACA, as it exists today, and I am including it here, as any discussion ultimately devolves into a jumbled dialogue of sorts, that is really just a bunch of talking points that we counter to the best of our knowledge. This is very high level but the full law can be viewed here. Despite the “buzz”, in my opinion, the law is easy to understand. One may fundamentally disagree with certain of its terms but it is an easy read for any native English speaker.

From HHS:

About the Law

The Affordable Care Act puts consumers back in charge of their health care. Under the law, a new “Patient’s Bill of Rights” gives the American people the stability and flexibility they need to make informed choices about their health. View Key Features of the Affordable Care Act or read a year-by-year overview of features.

Coverage

Costs

Care

Content created by Assist. Sec./Public Affairs – Digital Communications Division Content last reviewed on November 14, 2014

 

MA BIO CRO Symposium

Looking forward to re-connecting with some of our clients and other industry colleagues on Monday, May 5th at the MA BIO CRO Symposium. I will be facilitating one of the Roundtable discussions: “Legal and Contracting Strategies That Maximize CRO Partnerships and Ensure Success”.  Please stop by to say “hi” if you are attending.

Boston Strong

Thank you Diana!

I cannot thank Diana S. (one of our clients) enough for sending us our own copy of the Sports Illustrated Boston Marathon retrospective! We were working on a project together that fateful week and, although her office is in New Jersey, I really felt as if we were experiencing the bombing, manhunt and lockdown together.

For those of you who do not live in Boston, this may not seem like a big deal but copies of this SI edition flew off of the shelves and, as much as I wanted to have one, I could not find one. Luckily, Diana’s husband works for SI; proving once again that it is good to have friends with connections!

 

 

 

Not so fast: NY’s highest court rules that “lost profits can sometimes be general (or direct) damages”

Whether or not it makes sense to waive all indirect and consequential damages in a services agreement is a question for another day (we think it is not, by the way) but a recent ruling in Biotronik v. Conor Medsystems Ireland calls into question a contract term that we thought was enforceable: a limitation of liability clause that precludes consequential damages.

Before we get into this ruling, it is worth mentioning that Contracts Associates prefers to exclude limitation of liability provisions from contracts in order to preserve the availability of all types of damages permitted under law for claims our clients may against the other party. It just does not seem like sound practice to advise one not to avail oneself of remedies provided by contract law that has carved out adequate remedies for centuries.

Back to the ruling: As contract attorneys, we advise our clients what is means to agree to a clause that precludes recovery for consequential damages which are generally  accepted to be: damages for business interruption, loss of use, data, revenue or profit, whether arising out of breach of contract, tort (including negligence) or otherwise, regardless of whether such damages were foreseeable and whether or not the breaching party was advised of the possibility of such damages.

Here is a synopsis of the case:

Biotronik (the distributor), agreed to purchase stents manufactured Conor, for resale and paid Conor a transfer price for each stent, calculated as a percentage of Biotronik’s net sales. In 2007, Conor recalled its stents from the market and paid Biotronik in accordance with the “Recall” section of the contract. Despite the fact that the contract had a provision restricting the parties to general damages and prohibiting either from obtaining “any indirect, special consequential, incidental or punitive damage”, from the other, Biotronik sued under a theory of breach of contract and sought as its sole damages $100 million in profits it claimed it would have made reselling the stents over the remaining term of the agreement.

Lower courts relied on the contract’s limitation of liability clause but a divided Court of Appeals reversed, and held that, under this particular contract, Biotronik’s lost profits were general (direct), not consequential, damages, and therefore not barred under limitation of liability clause in the parties’ agreement.   

The twist here is that the Court of Appeals made the distinction between lost profits of the non-breaching party that flow from collateral transactions—separate agreements with third parties (which remain firmly on the side of being “consequential”) and lost profits that flow from a provision in the agreement between the two parties themselves 9in this case, the pricing terms). The Court ruling appears to allow lost profits to be considered direct damages only where the profits at issue flow directly from the parties’ relationship under the contract.

Put another way, the Court found that because the whole point of the contract (the “essence of the contract”) was to resell the stents and the manufacturer agreed to use the distributor’s resale price as a benchmark for the dollar amount it would receive from the distributor,  the lost profits suffered by the distributor after the recall flowed directly from the transfer price (paid to the manufacturer) and were therefore direct/general and by definition, recoverable damages. This is surely a $100 million surprise to the manufacturer.

We have clients that sell kits and other goods to distributors and we are currently working on drafting contract terms to protect them. As always, we are here to help our clients navigate these issues. Call us at 617.275.8080 if we can be of any assistance.

 

 

The Patient Protection and Affordable Care Act and “Applicable Laws” in clinical trial agreements

We are recommending that sponsors include The Patient Protection and Affordable Care Act in any listing of “Applicable Laws” in clinical trial agreements. As the PPACA includes, among other additional duties and obligations for health care providers and industry alike, reporting requirements for reporting certain payments to CMS, under what was formerly known as the Physician Payment Sunshine Act, it is not enough to refer only to the CFRs, ICH GCP and FDA guidance documents.

While it is common practice for some in our industry to agree to a vague and general obligation to conduct clinical trials in accordance with “all applicable laws and guidelines”, we at Contracts Associates interpret the OIG statement, in the HIPAA/HITECH legislation, to mean that applicable laws need to be clearly spelled out. Listing each applicable law and guideline ensures a meeting of the minds and clarifies the assumptions of the parties, at the time the contract was entered into.

For example, if a contract was signed before CMS designated industry sponsors as “Secondary Payors” under Medicare and required reporting of payments for treatment of a Medicare subject’s study-related injury, it could be argued that the study site did not intend to provide subjects social security numbers upon sponsor request.

As always, we are here to guide your company on matters such as this. Call us at 617.275.8080 if you would like further clarification on the impact of agreeing to adhere to “applicable laws” in your contracts.