Advantages of Arbitration in Indian pharmaceutical sector

Advantages of Arbitration in Indian pharmaceutical sector

This Article is submitted by –

  • Namrata Dalal- GU; Gujarat law Society; Ahmedabad; BA. LLB; 4th year

This article talks about the Arbitration as a mechanism to settle the dispute in Pharmaceutical sector. As Pharmaceutical industry involves multi-jurisdictional and Cross border issues, regarding Patent, IP disputes, Licensing Disputes, and trademarks; it is effective to use Arbitration to resolve the disputes. India is the Third largest market for Pharmaceuticals in terms of volume and thirteenth largest in terms of value. As the population is increasing, dealing with Pharma sector are on the rise, leading to upsurge in manufacturing medicines; in- turn creating disputes revolving around the product. The technique of Arbitration provides a neutral base at international forums as the rule of law is not strictly applied. The aspect of confidentiality is strictly followed which makes it beneficial. This sector is attracting foreign  investors and helping in making India an international Arbitration Hub. The dealings take place in fair and equitable manner, which make it suitable for the corporate purpose. The time limitation molds the purpose to resolve dispute within the limitation demarcated. This paper draws the conclusion that using Arbitration as a means in Pharma sector helps to resolve the dispute timely.

Over the years, there has been advancement in scientific technology, leading to design, crafts and even manufacturing products for various uses. Every invention has its own implication. These inventions can lead to life changing effects which can be good or bad. They involve certain costs and risks, there are failures also associated with them. There has to be proper check on what the product is all about and what its implications are. After certain period of time, the product may lose its value and there are general requirements of certain additions to it, so as to make it applicable. This effect can be applicable on Pharmaceutical sector.[i]

India has grown to be the Third largest market for Pharmaceuticals in terms of volume and thirteenth largest in terms of value. For the healthcare sector, it is a developing area, which las led to inventions of essential drugs. These inventions have given rise to acquiring Patent, License and trademarks. The distribution of drugs from India takes place in many countries, namely China, Africa, New Zealand and United States of America. It is due to this large distribution that the Indian courts have taken and upheld wide-ranging measures influencing Pharma companies. Litigations in Pharma companies call for court proceedings in every situation when there is infringement of contract, trademark, patent or license etc. Here if the product is having a huge market worldwide, then it attracts a substantial and economic impact on the litigation. The companies today have no time to waste as the competition is growing and there is a fast need to solve the issue if the issue arises. Alternative dispute resolution techniques are becoming an essential pathway to solve the Pharma sector disputes in a speedy manner. The Pharma companies in their agreement or the contract are referring to the clause of Arbitration, so if there is a dispute then it can be easily solved through the process of Arbitration.

Preference to arbitration in Pharma sector-

  • The litigation procedures are different in different countries, while for the Arbitration procedure the process is simple and can be molded for the benefit of both the parties.
  • It is at the discretion of the parties to decide the seat of the arbitration and the arbitrators for their dispute. The options as to which law will apply, language, rules and customs are also defined by the parties. The procedure can be kept confidential which results in a major plus point for the parties.
  • The Arbitration procedure is also economical in nature; there is equal sharing of the cost between the parties. It is useful due to its greater control over the proceedings; there is no extra involvement of unnecessary elements, which delay the process. It is due to this easy procedural methodology that arbitration is preferred.
  • As India has made its market liberalized, the Pharma companies are to a great advantage of exploring the markets of different countries. In this process of exploring, there are some legal contingencies involved, irrespective of that arbitration has become an advantageous mechanism to solve the Pharma sector disputes.

Generally, the contract agreement of the Indian pharma companies contain clauses where Arbitration has been mentioned, in terms of governing law and jurisdiction. Where they have decided that each party will nominate what number of arbitrators. Usually the third arbitrator is from the arbitration commission, he has the nationality of other than those of the party. For the arbitration proceedings to run smoothly the Sections 8, 10, 11 and 45 of the Arbitration and Conciliation Act are machinery provisions for the Court to support and aid arbitration. The agreement in the arbitration is said to be valid until the intentions of the party to resolve the dispute by the arbitration is made clear and specific. If there are any allegations of non-conclusion of the main contract then the contract itself is immaterial. The seat of the arbitration can be the one decided by the parties, which provides flexibility to a great extent. The courts of the seat of arbitration have the exclusive jurisdiction to exercise supervisory powers over the arbitration process but the courts of the venue of arbitration cannot have concurrent jurisdiction in this regard. [ii]In a study conducted by the Singapore International Arbitration Centre, almost 30 per cent of the disputes it hears annually relate to matters involving Indian businesses. Also, the number of disputes it settled between 2001 and 2013-14 had shown a ten-fold increase. These become reasons that Pharma companies choose Arbitration as dispute resolution method. India is on the pathway of making Arbitration as a useful dispute resolution technique in various sectors.

Challenges faced during the process-

  • There are certain difficulties which are faced by the parties during the process of arbitration. The major one being the [iii]highly technical and scientific information accessible to the arbitrators and their own counsel. The disputes related to the intellectual property of medical devices and pharmaceuticals, are basically dependent on the information that is scientifically complex and technical.
  • Further more, it makes it important for parties to find out the right expert to assist the counsel in understanding the complexities of the evidence as they assist to put the case forward by making the counsel understand the main concepts and how they are central to the resolution of the dispute.
  • The issue of confidentiality also carries utmost importance. It is upon the parties to consider from the outset whether the express confidentiality provisions are required to keep the existence of the dispute out of the public domain. It is the responsibility of the parties to enter into an agreement while disclosing documents or the expert reports in the dispute proceedings. In a pharma company, it is seen that there are commercially reasonable efforts made for the distribution of the products. If these efforts are not made then arbitration proceedings shall follow for the same. Here the arbitrators need to be aware of the relevant contractual, IP regulatory and industrial aspects.
  • [iv]The arbitration agreement specifies the qualification of the arbitrators needed so as to carry out the proceedings smoothly. Generally, the agreement prefers that the arbitrator should have experience of at least 10 years. This should be clearly avoided as it leads to delay in arbitration once initiated, as it often turns out to be irrelevant to resolve specific dispute. Arbitration is known for resolving disputes within a short span of time but this does not mean that there should be irrelevant or unrealistic time limits which is allotted.
  • The parties including the counsel have to be very careful in deciding the seat of the arbitration. In international commercial arbitration, this holds great importance. There are jurisdictions which might limit the arbitialbility of certain subject matters, this cannot be overlooked.  

Application of strategis-

  • The parties usually tend to underestimate the common procedural and practical difficulties that may arise in the arbitration; this can be the time taken to secure hearings in front of high profile arbitrators or the procedural wrangling involved in agreeing with the detailed confidentiality provisions.
  • The parties also need to be vigilant as the arbitrations can become expensive if they are unchecked for the rounds of the pleadings, selecting the arbitrators and administering the institutions with more reasonably hour rates.
  • There has to be certain dignity maintained by the parties so that their relations are not strained.
  • It is for the arbitrators to have a clean slate state of mind, there have to be no assumptions and presumptions made by them according to their previous knowledge about the arbitration proceedings in pharma sector. 

Landmark Case-

In the of Sun Pharmaceutical Industries Ltd v/s Nigeria-based Falma Organics Limited[v], Supreme Court told the Mumbai Centre for International Arbitration (MCIA) to appoint an arbitrator in an international dispute between top drug manufacturer Sun Pharmaceutical Industries Ltd and Nigeria-based Falma Organics Limited, signalling a major boost to arbitration in the country. This was the first time in India when a court in the country had invoked section 11 of the Arbitration and Conciliation Act, 2015, seeking an independent body to appoint an arbitrator in a dispute.  Gradually there is quality improvement seen in the arbitration procedure, which is a positive step towards the improvement in the alternative dispute resolution techniques.

Conclusion

India is a technologically developing country. The pharma sector is on the rise. The health of the country depends on how the pharma sector serves the country. There can be grave violation of fundamental rights if the treatment or the medication required is not delivered properly. As the pharma sector attracts monetary gains, it leaves behind a vast challenge of monitoring big players in the pharma sector. To end the arising dispute, it is necessary to provide justice as early as possible. The Alternative dispute resolution techniques provide with this mechanism. Arbitration is said to justify the process of delivering justice within a stipulated time period and also having greater control over the proceedings. It is an easy means to provide appropriate award. The supreme court has taken upon it a task to divert the pharma sector cases to the arbitration proceedings so as to shift the burden of the court and provide quick justice.

“The views of the authors are personal

Reference

[i] https://www.ibef.org/archives/detail/b3ZlcnZpZXcmMzc2NDQmOTA=

[ii] https://www.connectedtoindia.com/adb-chooses-singapore-over-mumbai-as-arbitration-centre-3943.html

[iii] https://www.wipo.int/export/sites/www/amc/en/docs/2017_pharmacdm.pdf

[iv] https://www.trilegal.com/index.php/publications/analysis/arbitration-and-conciliation-amendment-act-2019-key-changes

[v] Arbitration case No. 33 of 2014