The "State" Of Clinical Trial Contracts: What Pharma Sponsors Need To Know

By Cherron Payne, Esq, Contract Specialist, Office of Clinical and Translational Research, University of Connecticut Health Center

Clinical trial sponsors, such as pharmaceutical companies, often engage in multi-site clinical trials to reach a diverse population, recruit patients quickly, and obtain information from a varied demographic.  In an effort to garner varied data, sponsors institute clinical trials at various sites, including state agencies. While a state agency, such as a state university, may be a prime candidate for research, pharmaceutical companies must be cognizant of certain contractual issues that are pertinent to state agencies.

Under the United States Constitution, states are afforded autonomous rights.  States are self-governing bodies with their own constitution, statutes, and court system.  In essence, states, and state agencies, are bound by their own laws and must adhere to certain mandates to maintain their sovereignty. Because of these mandates, there are specific issues that must be addressed when negotiating clinical trial contracts.  Some of the most pertinent issues are the following:  indemnification, claims against the state, governing law, arbitration or alternative dispute resolution, and insurance. [1]

Because states have different laws, this article will not focus on the nuances of every state.  This article will address clinical trial negotiation with a Connecticut state agency, but will also discuss salient issues that often affect entities of other states.  Some of the requirements of Connecticut state agencies are congruent to the needs of agencies in other states.

HOW SHOULD YOU HANDLE INDEMNIFICATION?

Indemnification is a provision that is found in the majority of clinical trial contracts. Indemnification is simply the compensation for loss or damages sustained.  Due to the nature of clinical trials, specifically those engaging human subjects, there are a number of risk factors involved.  By agreeing to indemnify, the pharmaceutical company and the clinical research site ensure there will be just compensation for potential loss or damage.   

Generally, indemnification is mutual; the parties agree that if there were a claim due to negligence, the offending party would indemnify the non-offending party.  However, when dealing with a state agency, indemnification is usually not mutual.  For example, in Connecticut, a state agency cannot indemnify.  Such indemnification would be contrary to Connecticut law because it contradicts the doctrine of sovereign immunity.

Sovereign immunity is a judicial doctrine that prevents the government or its political subdivisions, departments, and agencies from being sued without its consent.  Thus, sovereign immunity extends to state agencies. A lawsuit cannot be brought against a state agency unless the agency consents.  For example, in the case of Berger, Lehman Associates, Inc. v. State, the court held “It is the well-established and recently reaffirmed law of this state that the sovereign is immune from suit unless the state, by appropriate legislation, consents to be sued.”   Berger, Lehman Associates, Inc. v. State, 178 Conn. 352, 356 (1979).  In Kawananokoa v. Polyblank, the court asserted, “A sovereign is exempt from suit not because of any formal conception or obsolete theory, but on the logical and practical ground that there can be no legal right as against the authority that makes the law on which the right depends.”  Kawananokoa v. Polyblank, 205 U.S. 349, 351 (1997).    

In order to comply with sovereign immunity, there are two viable resolutions proposed in clinical trial negotiations regarding indemnification:  (1) the pharmaceutical sponsor will offer indemnification to the state agency but the state agency will not indemnify the Sponsor or (2) neither party offers indemnification and the parties agree to remain responsible for their own acts of negligence.  In conjunction with the issue of indemnification, it must be noted that if a party were to make a claim against a Connecticut state agency, it must be done in accordance with Chapter 53 of the Connecticut General Statutes which specifies the procedure for making claims against the state.

ARBITRATION AND OTHER PERTINENT ISSUES:  WHAT ARE YOUR OPTIONS?

Arbitration or alternative dispute resolution “ADR” is another provision that must be negotiated in accordance with state law. Because of sovereign immunity, a Connecticut state agency cannot agree to binding arbitration or to binding ADR.  Therefore, a state agency’s preferred solution is that all references to arbitration or alternative dispute resolution be stricken from the contract.  If a sponsor insists upon keeping the arbitration clause in the contract, then the term arbitration must be changed to “non-binding” arbitration.

Another issue that is applicable to state agencies is that of governing law.  Due to the separate sovereignty of the states, a state agency must uphold a state’s autonomy and cannot agree to the law of another state.  For instance, a clinical trial agreement with a Connecticut state university must be governed by Connecticut law.  As a solution to conflicts regarding governing law, sponsors may agree to the contract being governed by the law of the state agency.  Another resolution, to which sponsors will often agree, is for both parties to remain silent regarding governing law.

The final issue concerns insurance. The sponsor may require that a state agency maintain an insurance policy from a private company specifying the minimal limitation of liability. However, many state entities are self-insured.  For example, in Connecticut, state agencies receive insurance funding from the state coffers.  As a result, some state agencies cannot agree to furnish a policy from a private insurance company. Some states may even have statutes that forbid obtaining private insurance.    However, in Connecticut, sponsors have resolved this issue by agreeing to accept a letter of self-insurance from the Assistant Attorney General.

Although there may be additional issues that require negotiation with state agencies, the negotiation of clinical trial contracts with state agencies, such as state universities, offers many benefits.  The “state” of clinical trial negotiation remains manageable if sponsors understand the critical requirements of state agencies and employ viable solutions.