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The importance of Compliance clauses in healthcare company contract: the French Supreme court has validated the termination of a commercial contract for failure to comply with the anti-kickback statute, Transparency and FCPA.

04/03/2020

Pharmaceutical and medical device manufacturers use service provider, distributor or sales agent contracts for the marketing of their healthcare products. The French supreme court has just assessed the so-called "Compliance" clauses.

In this case-law, a healthcare company had hired a "business agent" under an open-ended contract to find customers in return for the payment of commissions on the sales that took place. This contract also stipulated that the agent had to comply with the anti-kickback statute, Transparency, and the American Foreign Corrupt Practices Act (FCPA). By way of example, the contract stated that the business agent "acknowledges being informed of the provisions of Article L. 4113-6 of the French Public Health Code and undertakes to comply scrupulously with its terms".

As the agent failed to comply with its compliance obligations, the healthcare company terminated the contract without notice for misconduct, thus depriving the agent of any compensation, which the agent contested on the legal basis of an abrupt termination of an established business relations.
The Supreme Court has just dismissed his appeal. It approved the Court of Appeal for having "considered that, taking into account the rules laid down by the "compliance" program of the [healthcare company] and the contract concluded, the failure of [the agent] to comply with his contractual obligations, in so far this waslikely to engage the [healthcare company]'s  own liability, was sufficiently serious to justify the termination of the business relationship without notice".

To our knowledge, this is the first time that the Supreme Court has found that a breach of the Compliance rules, including the anti-kickback statute, Transparency and FCPA, can be the basis for the termination of a commercial contract for fault. This ruling thus highlights the usefulness of compliance clauses (anti-kickback statute, Transparency and FCPA) included in contracts of service providers or commercial partners.Thus, far from constituting style clauses, these clauses now appear to be a source of real stakes: not only should they be stipulated, but also drafted with great vigilance.

 

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