Meaning of ‘commercially reasonable efforts’ clarified

Where an asset purchase agreement required the purchaser to use “commercially reasonable efforts” to market and sell a pharmaceutical drug, the court clarified how the business interest privilege affected this obligation.

Background

This matter comes before the court following extensive briefing by the parties regarding the business interest privilege that defendants first asserted in their motion for summary judgment. In its memorandum order addressing the business interest privilege, the court found that the privilege “exists as an inherent component of a party’s normal business practices.”

Construing the asset purchase agreement at issue, the court concluded that “by operation of the plain-meaning rule of contractual interpretation and the business interests privilege, Defendants were permitted to consider the profitability of Amrix and whether the commercialization of that product would harm their business interests, but could not simply reduce or abandon their sales force efforts if they believed other products might be more profitable in comparison to Amrix.”

During a subsequent conference call with the parties, the court informed the parties that they would be precluded from presenting evidence or argument during trial on two issues: (1) the profitability of other products in defendants’ portfolio and (2) defendants’ financial condition, including any losses arising from any lawsuits.

Because these two issues and the terms of the agreement lie at the heart of the dispute between the parties, the court provides this memorandum opinion construing the relevant provision of the agreement to provide guidance to the parties as they prepare their revised proposed jury instructions and to set the parameters for the evidence to be admitted at trial.

Analysis

The agreement required Anesta AG, as the purchaser of Amrix, to use commercially reasonable efforts or CRE, in marketing and selling Amrix. As the court has previously ruled, applying the principles to the CRE provision at issue here permitted defendants “to consider the profitability of Amrix and whether the commercialization of that product would harm their business interests, but [defendants] could not simply reduce or abandon their sales force efforts if they believed other products might be more profitable in comparison to Amrix.”

That is so, because the CRE provision here makes no mention of the profitability of other products in defendants’ portfolio. Instead, the only reference to other products involves “the competitiveness of alternative products of third parties that are in the marketplace or under ­development.”

This silence speaks volumes. The fact that the parties explicitly agreed to permit defendants to compare their competitors’ products to Amrix while failing to allow them to compare Amrix with the other products in their portfolio demonstrates that the agreement barred defendants from taking the latter factor into account. The court must necessarily infer that CRE as defined in this contract did not encompass comparisons between Amrix’s viability and the rest of defendants’ portfolio, making evidence and argument on this point irrelevant.

Likewise, the CRE provision makes no mention of defendants’ financial condition. Instead, it defines “normal business practices” as no “less than the level of efforts and resources standard in the pharmaceutical industry for a company similar in size and scope to such [company.]” This provision focuses on simply the resources available to a reasonable pharmaceutical company of similar size and scope of defendants, not the overall financial goals or motives of defendants.

At the bottom, the court construes the CRE provision narrowly, such that the dispute at issue at trial will focus on whether a reasonable pharmaceutical company of similar size and scope to defendants would have found the continued sale of Amrix sufficiently profitable in the then-existing marketplace. In making this judgment, defendants could compare the resources required to achieve a sufficient level of profitability with the other factors that the CRE enumerates.

Having provided this interpretation of the CRE provision at issue, the court expects the parties to submit revised jury instructions  that are consistent with this opinion. The court further expects the parties to tailor their evidentiary presentation in a similar fashion.

E. Clairborne Robins Co. Inc. v. Teva Pharmaceuticals Industries Ltd., Case No. 3:18-cv-827, Feb. 28, 2022. EDVA at Richmond (Novak). VLW 022-3-107. 7 pp.