IP Draughts’ last two posts, on the subject of the EU/AZ advance purchase agreement for the Oxford Covid vaccine, have provoked an extraordinary amount of comment and analysis from readers, on the blog itself, and on the Twitter and LinkedIn pages to which the posts were fed. It is great to see so much thoughtful debate about the interpretation of a life-sciences contract!
That debate has raised many interesting points, as a result of which IP Draughts has revised (again) his conclusions about whether AZ is required to divert UK-manufactured vaccine to the EU. He now thinks it is clearer that AZ is not required to divert UK vaccine to the EU.
The following comments come with a massive caveat: the agreement is made under Belgian law and is subject to the jurisdiction of the Brussels courts. IP Draughts is not qualified to comment on Belgian law, and is interpreting the contract as if it were made under English law. This is not a trivial point; choice of law and jurisdiction in a contract can make a big difference to how the contract is interpreted and enforced.
The main reasons for IP Draughts’ change of heart from yesterday, from a 51:49 decision in favour of AZ to something more like 60:40 in favour of AZ, follow. These comments focus mainly on AZ’s obligations with respect to the [300 million] Initial Europe Doses, as defined. There are separate obligations with respect to further supplies at a later date, which don’t seem directly relevant to the current debate.
Emphasis has been added to the quoted text below:
- The first sentence of the agreement states that it is for the production, purchase and supply of the vaccine. It seems from European Commission (EC) comments that they have funded the setting up of production facilities in the EU.
- Under section 5.1, AZ is required to use Best Reasonable Efforts to manufacture the Initial Europe Doses within the EU.
- Section 5.4, headed Manufacturing Sites, requires AZ to use Best Reasonable Efforts to manufacture the Vaccine within the EU. If AZ wishes to manufacture outside the EU, e.g. to accelerate production, there is a detailed procedure in section 5.4 that must be followed. It seems clear to IP Draughts from this and other sections, that the EC has a strong preference for manufacture in the EU. It is also interesting to note that the contract is with AstraZeneca AB, a Swedish company and therefore based in the EU; was the choice of this AZ company at the EC’s request, or selected by AZ to please the EC?
- A potential problem with IP Draughts’ conclusion is the fact that section 5.4 states that the UK is treated as part of the EU, but only for the purpose of Section 5.4. IP Draughts is persuaded by readers’ comments on this blog, that the reason for mentioning the UK here is so that AZ doesn’t have to seek approval from the EU if it decideds to supply the EU with product manufactured in the UK. Mentioning the UK does not create any obligation on AZ to supply from the UK, and indeed section 5.1 above states clearly that the Initial Europe Doses are to be manufactured in the EU (and by implication, not in the UK).
- AZ gives a warranty in section 13.1(e) that it is not under any contractual or other obligation in respect of the Initial Europe Doses that conflicts with the present agreement or would impede AZ’s fulfillment of its obligation under the present agreement. Read together with section 5.1, it becomes clear that this is concerned with AZ’s manufacture in its EU plants.
- The Best Reasonable Efforts standard is set out in section 1.9. The definition includes familiar references to what another company of AZ’s size and resources would do. IP Draughts doesn’t think a reasonable large pharma company would or should break prior contractual obligations to supply product to major customer A in order to meet an order from major customer B, in circumstances where (a) the intended manufacturing facility for customer B, subsidised by customer B, is experiencing problems, and (b) the alternative supplies would have to be obtained from a manufacturing facility that was subsidised by customer A, and were originally earmarked for customer A. IP Draughts is speculating here about some of the facts.
It is reported that AZ’s CEO has focused on the fact that AZ’s obligations are limited to best efforts (in fact, Best Reasonable Efforts, as definedin the contract). Without knowing the detailed facts about what is happening at the EU manufacturing facilities it is perhaps idle to comment, but it seems plausible that AZ has a good argument why failure to deliver vaccine from the EU plants is not itself a breach of contract.
For the reasons enumerated above, IP Draughts thinks that AZ also has a good argument that the Best Reasonable Efforts obligations do not impose any obligation on AZ to supply product manufactured in the UK and supplied under contract to the UK government.
IP Draughts expects that AZ would have explained its contractual analysis to the EC. Is this the reason that the EC’s focus seems to have changed in recent days, from demands to get supplies manufactured in the UK, to raising queries about whether AZ has diverted EU-manufactured vaccine to the UK?