International Distribution of Medical Devices Strategies for Structuring Contracts and Managing Risk

1
International Distribution of Medical
DevicesStrategies for Structuring Contracts and
Managing Risks and Disputes

• Karen A. Gibbs
• Partner, Crowell Moring LLP
• March 2008

2
All the problems of the world can be solved if
people would just stop and think. -- Socrates

• Focus Preparing distribution agreements
  intelligently and with an eye towards dispute
  avoidance and risk management
• Careful pre-contract planning
• Intelligent and informed transaction structuring,
  documentation and drafting
• Comprehensive contract dispute avoidance and
  management protocols

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Basic Ways To Distribute

• Team with another supplier with existing,
  reliable distribution channels
• Direct employees
• May involve an international subsidiary
• May involve inside U.S. sales force fielding
  catalogue orders
• Outside sales representatives
• Independent distributors

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Deciding How To Distribute?

• Considerations
• Your local sales and marketing expertise
• Your resources to manage third parties
• Your ability to capitalize an international
  presence
• Your desire to manage the brand and customer
  relationships
• Your desire/need to handle compliance with local
  regulatory matters, billing and payment matters,
  etc.
• Whether you can find a suitable distribution
  partner
• Common Choice Use a distributor but allow for
  the possibility of going direct in the future
• Common Challenge Protecting your options and
  minimizing exposure with the distributor

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Strategize Think Before You Leap

• Plan, then plan some more
• Assign cross-functional teams to explore and
  prioritize the what ifs or the who will be
  responsible for . . .
• Obtain working knowledge of potentially
  applicable laws, regulations and practices of the
  target country
• Common mistake is to assume all EU countries have
  common distribution law but EU law merely sets
  a floor and each country is free to provide
  additional rights to agents and distributors
• Example 1961 Belgian Distribution Law

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Issues to Explore with Your Team

• Applicable distributor laws and protections
• includes indemnity obligations, termination and
  notice requirements
• Regulatory requirements
• licenses, approvals and registrations and who
  must hold them
• compliance with the FCPA and export laws
• Consumer protection laws
• many countries do not allow limits on certain
  liabilities
• Intellectual property protection
• who will protect the product and brand, patents
  and trademarks
• the target countrys enforcement practices
• third-party blocking patents in the target
  country

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Structuring and Drafting the Agreement Basic
Terms and Conditions

• Grant of rights
• products and countries/territories
• exclusive or non-exclusive
• if exclusive, consider carve outs for
  later-established subsidiaries or after-acquired
  affiliates
• Performance requirements
• minimum sales requirements (not purchase
  requirements) over time period
• mechanisms for changing the metric

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Structuring and Drafting the Agreement Basic
Terms and Conditions

• Marketing obligations
• in-servicing at customers sites, physician visits
• trade show participation and budgets
• marketing materials to be used and
  control/approval of same to avoid liability
• Legal and regulatory compliance
• Restrictions, e.g., non-competes
• Termination
• Dispute Resolution

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Structuring and Drafting the AgreementDo You
Need a Dispute Resolution Clause?

• Ignore the potential for disputes?
• Designate courts or tribunals?
• Choose a specific venue and applicable law?
• Provide for informal dispute resolution
  mechanisms?
• Provide for arbitration?

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Structuring and Drafting the Agreement If
Choosing Arbitration

• It is critical to understand treaties, national
  and local laws potentially applicable to the
  enforcement of arbitration awards and civil
  judgments
• Investigate laws that might affect the agreement
  to arbitrate future disputes, e.g., the law of
  each jurisdiction where enforcement of the award
  may be sought, whether the parties can agree to
  arbitrate future disputes, whether there are
  required formalities regarding the form or
  content of the agreement

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Structuring and Drafting the Agreement The
Arbitration Clause

• How detailed should the clause be?
• It may not be worth getting hyper-detailed in
  negotiating procedural requirements for resolving
  future disputes that may never arise unjustified
• Hyper-specification in an arbitration clause may
  lead to conflict with arbitration rules parties
  may have incorporated into the agreement
• Excessive procedural detail in an arbitration
  clause can also limit the flexibility of the
  arbitrator(s) in fashioning a dispute resolution
  procedure that is appropriate for the actual
  dispute that has arisen

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Structuring and Drafting the AgreementEssential
Elements of Arbitration Clauses

• Define the disputes covered by the clause
• What arbitration group will hear the dispute
• Governing rules
• Location of arbitration
• Qualifications, nationality, number and
  appointment of arbitrators
• Language
• Choice of law

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Structuring and Drafting the Agreement Optional
Elements of Arbitration Clauses

• Discovery
• Interim relief
• Multiple parties
• Exclusions
• Confidentiality and privacy
• Prevailing party fees and expenses
• Independence of arbitrators
• Judicial review
• Effect of the award

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Mechanisms for Less Formal Dispute Avoidance and
Management

• Problem escalation procedures
• Dispute resolution teams
• Non-binding expert determination
• Executive-level negotiations
• Mediation
• Early case evaluation

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Thank you!

• Karen A. Gibbs, Partner
• Crowell Moring LLP
• 3 Park Plaza, 20th Floor
• Irvine, California 92614
• Email kgibbs_at_crowell.com
• Direct 949-798-1329