Category Archives: Contract drafting

Legal drafting issues in medical research

biobankIP Draughts has been reviewing a large number of publicly-accessible documents used in medical research, particularly in the context of what are variously known as tissue libraries or biobanks. In other words, collections of materials taken from patients and intended for use in research. The materials might include body tissue, cancerous cells, or blood. The research might lead to the development  of diagnostic products or therapies for human diseases and conditions.

The documents currently on IP Draughts’ desk include patient consent forms, information leaflets, material transfer agreements, and policy guidance notes. Reading these documents, it is striking how much variation there is in the language used to convey similar ideas, and how difficult it seems to be to communicate clearly and accurately.

IP Draughts doesn’t underestimate how complex the task is. The drafter needs (but often seems to lack) a wide range of skills, including:

  • Regulation. How to comply with and explain complex laws and regulations, such as the Human Tissue Act and Data Protection Act. Often there are several layers of regulation, each with their own vocabulary, including those applying to human tissue, associated data, data protection and medical ethics.
  • Contract drafting. How to draft documents in a legally accurate way. For example, in identifying the parties to an MTA. Organisations such as  “the Loamshire BioRepository” (to anonymise the name in an MTA in front of IP Draughts) doesn’t exist as a legal entity, and is simply a convenient name for a collaboration between Loamshire University and Loamshire Hospital NHS Trust. Referring to the Biorepository as the provider of the materials is unclear. At the end of the document, it is unclear whether the person asking for the materials is an individual researcher or an institution. Failing to identify the parties to a contract is a very basic mistake. In the same document, the drafter clearly doesn’t understand the conventions on using defined terms; he defines the “Material”, then uses the expression ‘Material’ with pointless and weird single inverted commas.
  • Science. How to communicate with researchers, whose focus is likely to be mainly on their scientific projects, and less on the details of compliance with legislation.
  • Donors. How to explain, at a level suitable for the general population, the nuances of the permissions being sought – eg the range of research in which the human materials will be used, the right of the person to withdraw consent, why individual-related information on the outcome of the research will not be provided (it should be done by the patient’s doctor, not by a research team; and anyway, if the research has been anonymised, the researchers won’t know the identity of the patient, etc)
  • Communicating at a time of grief. In the case of material to be taken from a corpse, how to communicate with grieving relatives who are being asked for permission to use the body of a recently-deceased person for medical research, or to confirm their consent to instructions given by the deceased before his or her death

bodyReading through a selection of documents, IP Draughts is left feeling that the drafting of documents within a complex regulatory regime should be a multi-disciplinary team effort, in which the best communicators among doctors, nurses, researchers, regulatory experts and lawyers should be engaged. Instead, the drafting seems often to be left to someone to ‘muddle through’ as best they can.

One of the areas where these issues come up is in relation to IP and property issues arising from the use of materials in research. These issues arise at several levels:

  1. As a matter of public policy and law, it may not be possible for there to be property in body parts, though there seem to be some exceptions to this principle. Similarly under the EU Biotechnology Directive, some aspects of the human body are not patentable. Therefore, referring to a biobank as owning materials, or owning the IP in materials, may or may not be legally meaningful.
  2. Linked to the above points is whether the patient can claim any financial or other interest in, or control over, the exploitation of products derived from research that made use of their materials. If consent forms mention this issue at all, they vary widely in how they cover it.
  3. Should the biobank, in its relationship with the researcher who takes material from the biobank, claim to own those materials? Some do and some don’t. A policy document issue by the UK National Cancer Intelligence Network in June 2009, quoting a recommendation of the Confederation of Cancer Biobanks, suggests that biobanks should waive their IP rights in the materials that they supply to researchers.

noIP is just one of dozens of legal, practical and policy issues that are typically addressed in the documents. It is difficult to know how best to deal with these issues as a researcher or the employer of a researcher. Should one take the terms on offer or try to negotiate them, if only to remove glaring inconsistencies and inappropriate terms? It seems that some biobanks refuse to negotiate the terms of their MTAs, no matter how badly drafted they may be.

Rather than spend a time and money negotiating terms in individual cases, shouldn’t the sector be developing some standard contracts, as has been done for university research contracts (the Lambert agreements) and for clinical trial agreements in NHS hospitals? Although neither of these examples of standard contracts is perfect, at least they provide a way of reducing negotiation time.

 

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What’s the point of good contract drafting?

imperfectThis post is triggered by several recent conversations and thoughts:

  • the patent attorney who told IP Draughts’ colleague recently about the poor quality of patent examiners in the USA and certain other countries, who apparently sometimes misunderstand basic English, let alone complex scientific concepts. This raised in IP Draughts’ mind the question of why patent attorneys spend years honing their patent drafting skills to a very high technical level, when the system seems to be crude and imperfect; and whether a similar question should be raised about the drafting of contracts.
  • the Court of Appeal judge who told IP Draughts that courts would always try to “do justice in the case” in contract disputes, the implication being that interpretation of the wording used in the contract might take second place to wider policy considerations, and that if IP Draughts wanted an approach based purely on the contractual obligations he should go to arbitration.
  • the fact that contracting parties will sometimes argue an interpretation of contract wording that is clearly wrong, no matter how clear the drafting, if it is in their commercial interests to do so.

There is a legitimate question about whether we are too nice (in the senses of fastidious or foolish) about the drafting of contracts. Rather than waste time focussing on clear and accurate use of language to state contractual obligations, shouldn’t we recognise that the world is imperfect, treat contracts as a process rather than an opportunity for exercising our writing skills, get the wording roughly right, and save our energies (and the client’s money) for arguing the toss when a dispute arises?

yukIP Draughts’ answer to this question is an emphatic no. But mere assertion is not enough. Why should we spend time in getting the wording as right as we can? Several thoughts come to mind:

  1. The example of the construction industry, where parties tend not to take legal advice at the stage of entering into their contracts, and instead spend more money on litigating their contracts. There is a view among (at least some) lawyers that more money spent in getting the contracts right in the first place would save money in litigation and overall.
  2. The fact that sometimes court cases are decided based on the wording of the contract – several examples come to mind  – where clear and accurate wording may reduce the likelihood of the court coming up with an inappropriate interpretation. In recent years, the UK Supreme Court has heard several cases in which it has updated its approach to interpretation – particularly where the wording is unclear. Those cases would probably not have reached the Supreme Court if the wording had been clear.
  3. That producing clear, accurately drafted contracts demonstrates professionalism, which itself can help to smooth contract negotiations.
  4. That clients don’t always know whether their lawyer has the necessary legal knowledge and experience to handle their matter, but they can more often spot poor use of language. The self-interest of lawyers should encourage them to draft well.
  5. That consumer pressure, particularly in the UK but probably in other advanced countries, has made it difficult for lawyers to hide behind obscure, fusty language. IP Draughts had a very interesting conversation with some Chinese law students during a recent training course, in which they queried IP Draughts’ focus on clear, simple language and said that clients in China would expect their lawyer to use complex legal language, and possibly even think less of their lawyer if they used simple language. This didn’t resonate with IP Draughts’ current experience of UK clients, but he could imagine a similar approach a few generations earlier in the UK.
  6. That even if clients sometimes argue extreme interpretations of wording if it suits their commercial purpose, by making the wording clear and accurate, those arguments become more difficult to make.

wandIn summary, clear contract drafting is not a magic wand that guarantees that disputes are avoided and that contracts are interpreted correctly. The benefits are more nuanced. But there should not be any doubt that taking care to draft clearly and accurately is a good use of time and money.

 

 

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Remedies for breach of warranty

Beware of Daphne, bearing grease...

Beware of Daphne, bearing grease…

At one level, the case of Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm) (27 July 2016), reported on BAILII last week, is of limited interest. It is only a hearing of an application for summary judgment, before a deputy judge.

Nevertheless, it is a decision of the Commercial Court, and is a useful reminder of several points:

  1. That parties will argue obscure legal points if enough money is at stake, or if their “normal” legal remedies are time-barred (in this case there was a time limit of 18 months from completion for any warranty claim to be brought).
  2. That High Court judges can and will come up with different answers to those obscure points, and if there is not a good Court of Appeal authority on them, the chances of an unpredictable outcome are increased.
  3. That the issue of whether a party can bring a claim in tort for misrepresentation as well as, or instead of, one for breach of contract, is alive and kicking and can take many forms. It does not depend solely on whether the parties used the phrase “represents and warrants” in their contract.

The parties in this case were two Japanese companies who entered into a share sale agreement. A subsequent dispute with a third party resulted in the buyer suffering loss. The buyer was unable to bring a claim for breach of warranty because the agreed time period for bringing such a claim had expired. It argued that it also had a right to claim for misrepresentation, which was not time-barred. In other words, the buyer argued the same set of facts that caused it a loss gave rise to parallel claims for (a) breach of contract and (b) misrepresentation under the law of tort.

This was not a case where the argument was based on lead-in wording in the relevant clauses that the seller “represents and warrants” a series of statements. The clause in this case started with the following words:

Each of the Sellers warrants to the Buyer in respect of itself and its Relevant Shares in the terms of the Warranties in paragraphs 1 and 2 of Schedule 4

The buyer nevertheless argued that the matters warranted were also representations that were actionable under tort laws, including the Misrepresentation Act 1967.

This was despite the presence of another clause in the agreement which read:

The Buyer acknowledges and agrees with the Sellers that:

(a) it has not relied on, or been induced to enter into, this Agreement by any representations, warranties or undertakings of any kind other than the Warranties (as modified by the Disclosure Letter); and

(b) the Sellers shall not be liable to the Buyer (whether in equity, contract, tort or under the Misrepresentation Act 1967 or otherwise) for any warranty or undertaking which is not set out in this Agreement and the Buyer shall not be entitled to terminate or rescind this Agreement as a result of a breach of this Agreement, including the Warranties (for which the Buyer’s only remedy shall be in damages for breach of contract).

The buyer argued that the Warranties (as set out in Schedule 4 to the agreement) should be treated as representations as well as contractual promises and therefore the above clause did not prevent it from bringing a claim for misrepresentation.

The judge was referred to conflicting authorities on this point, namely:

  1. The decision of Arnold J. in Invertec Ltd v (1) De Mol Holding BV, (2) Henricus Albertus de Mol [2009] EWHC 2471 (Ch) which supported the proposition that a claim for misrepresentation could be brought.
  2. The contrary decision of Mann J. in Sycamore Bidco Ltd v (1) Sean Breslin, (2) Andrew Dawson [2012] EWHC 3443 (Ch).
Arnold J and Mann J have a disagreement

Arnold J and Mann J disagree

In the words of the deputy judge in the present case, “Mann J. gave fully reasoned consideration to the question, and to the decision of Arnold J. in the earlier case. He refused to follow Arnold J., not on the basis that there was any room to distinguish between the contractual wording in the two cases but because he disagreed with Arnold J.’s view as a matter of principle.” The deputy judge agreed with Mann J’s view on this point.

It seems that it was not entirely clear to the deputy judge whether the buyer’s argument was based on the idea of a prior representation made prior to signing the share sale agreement, that induced the buyer to enter into the share sale agreement, or of a representation that was made as part of the share sale agreement. Either way, the claim failed.

One of the deputy judge’s many stated reasons for coming to this view was that there was no express statement that the warranties were also to be treated as representations:

In some cases that problem is solved by an express provision making certain contractual statements representations. In such a case the parties have agreed as to their nature and how they should be treated. However, that is not the present case.

IP Draughts is disappointed by this last comment, which is a little glib and was not considered in detail. It suggests that the judge might have accepted the buyer’s argument if a formula such as “represents and warrants” had been used. That is far from a foregone conclusion, in IP Draughts’ view, though he is aware than many practitioners in the M&A field have a similar view to the judge on this point.

IP Draughts hopes that this topic will get an airing at the UCL panel discussion to be held in London on 8 November, Dysfunction in Contract Drafting, at which Ken Adams, Mr Justice Flaux, Kate Gibbons of Clifford Chance, and Kristin McFetridge of British Telecom’s legal department will be speaking. So far, 169 people have booked their (free) tickets for this event. Don’t miss out on what will be an interesting and lively occasion!169

 

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Contract drafting: grabbing the nearest document

kw hoursVia Ken Adams’ excellent blog, comes news of a very interesting article, The Inefficient Evolution of Merger Agreements. Written by two associate professors at US law schools, Robert Anderson and Jeffrey Manns, it describes and comments on an empirical legal research project.

The authors analysed the text of over 12,000 merger agreements that had been filed with the Securities and Exchange Commission by publicly-listed corporations between 1994 and 2014. US-listed corporations are required to provide copies of their material contracts to the SEC, which places them on its EDGAR online database.

EDGAR is a very useful source of examples of agreements, though it can be time-consuming and frustrating to find what one is looking for. Anderson (no relation to IP Draughts) and Manns used computer programs to automate their searches and to analyse the results.

edison lightThe purpose of this research was “to explore whether transactional drafting is a driven by a rational process that minimizes the cost of deal documentation and risk to clients or by an ad hoc process that increases billable hours and risk.” Guess what they found?

By comparing the wording of the agreements and using a technique known as Levenshtein distance, or edit difference, they were able to map the extent to which major US law firms used a template (precedent) when drafting a merger agreement or just grabbed a document from a recent transaction that the law firm associate thought suitable.

Their maps included those shown below. Where agreements are drafted from a single source, such as a firm precedent, the map will show lines radiating from that source. The authors’ research revealed very little of that radiation. Instead, there was evidence of documents being several generations away from an official firm precedent. For example, below is the map of contracts drafted by Sullivan & Cromwell.

sully

The authors also included a map of contracts drafted by Davis Polk, which was similar to the map shown above. In the case of one law firm, Cooley Godward, there was one clear focus point of radiation, but also a lot of non-radiation.

cooley

IP Draughts finds this paper fascinating for several reasons. First, it echoes his experience of how some clients work, when drafting IP-related agreements. They use a document that is loosely based on their official template agreement, but includes some deal-specific terms from previous transactions, which may or may not be suitable for the present transaction. Even if the added terms are desirable in principle, they were probably drafted in haste in the pressure of negotiations, or reflect a pragmatic compromise (taking account of the quirks of the person they were negotiating with) rather than an ideally-drafted clause. Over time, by starting with a document from a previous transaction, rather than going back to the official template, the documents that they use become corrupted with junk.

light bulbIt is very interesting to see major law firms, which trade on their reputation, doing exactly the same thing. The authors discuss the dynamics within law firms, including ridiculous time pressures, which may lead to an associate grabbing a familiar document rather than an official precedent. One point that is not mentioned in the article, but which IP Draughts thinks may also be relevant, is the extreme length and complexity of many agreements nowadays, which may make it difficult for a busy associate to understand fully the terms of his firm’s precedents. It may be tempting to use a document that he recently worked on; he spent many late nights negotiating that document, so there may be a comfort factor that he understands at least some parts of that document better than the official precedent.

(This is not a good excuse, by the way, for avoiding precedents that IP Draughts has drafted, which try to be concise and clear!)

The other point that IP Draughts finds very interesting in this article is its discussion of the fact that “there has been amost no empirical work on the legal drafting process in transactional law”, and that “the deal drafting process has been all but ignored by legal scholars”. IP Draughts agrees with these statements, and has ambitions to bring this type of subject to the UCL Faculty of Laws. Research at the boundary between doctrinal law and legal practice is an under-developed area, particularly in relation to commercial transactions. He has had exploratory discussions with the faculty about establishing a Contracts Institute (or similar) there, which would do a mixture of research, teaching and public engagement.

bulb dollarIf any reader knows anyone who might be interested, in principle, in funding such an initiative, (eg a major law firm, alumnus/alumna, or other benefactor) he would be very glad to hear from them. This idea is at too early a stage for us to have established structures for funding. But by way of comparison, the sponsorship opportunities for UCL’s Institute of Brand and Innovation Law can be found here.

A small example of the type of work we might do in this institute is the panel discussion that UCL will be hosting in November. See here for details.

 

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