Background In 2020, Advanced Pharmaceuticals, Limited (APL) and Smith Jones, Co entered into a joint marketing distribution agreement for Tranquilium, an anti anxiety medication As part of the agreement Smith Jones was provided the European distribution rights and APL maintained its U S distribution rights The relationship between APL and Smith Jones was highly lucrative for both parties The first year alone APL made $400 million off of their Tranquilium distribution agreement and Smith Jones made $250 million Subsequently the parties extended their distribution agreement to include five more drug products grossing over a billion in annual combined revenue for APL and Smith Jones The parties maintain that this longstanding relationship is essential to each company's continued longevity APL and Smith Jones continue to maintain the distribution agreement for Tranquilium While Tranquilium includes side effects such as sleepiness and drowsiness, it was not approved by the FDA as a sleep medication As such APL was limited to marketing Tranquilium as an anti anxiety medication in the United States In order to maintain continuity over the product's advertised usage, APL communicated to its distributors that distributors should not market the drug as anything other than an anti anxiety medication However, this term was not included in the contract In its agreement with APL, Smith Jones agreed to market, advertise, promote, and sell the Goods to Customers in a manner that reflects favorably at all times on Goods and the good name, goodwill, and reputation of Seller and consistent with good business practice, in each case using its best efforts to maximize the sales volume of the Goods This last year, Smith Jones ran a series of ads in Germany advertising Tranquilium as the ultimate sleep medication In the ads Smith Jones promised consumers the best sleep of their lives Shortly, after these ads ran APL sent a cease and desist letter to Smith Jones demanding Smith Jones immediately pull the advertisements APL also threatened to cancel the distribution agreement Smith Jones has pulled the ads and is concerned about APL's threat to cancel the contract for as a result of Smith Jones' alleged breach Dispute Resolution Clause Dispute Resolution Exclusive Dispute Resolution Mechanism The parties shall resolve any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof (each, a Dispute ), under the provisions of Sections 2 through 4 The procedures set forth in Sections 2 through 4 shall be the exclusive mechanism for resolving any Dispute that may arise from time to time and Sections 2 through 4 is an express condition precedent to binding arbitration of the Dispute Negotiations A party shall send written notice to the other party of any Dispute ( Dispute Notice ) The parties shall first attempt in good faith to resolve any Dispute set forth in the Dispute Notice by negotiation and consultation between themselves, including not fewer than two negotiation sessions attended by the CEO for APL and by the CEO for Smith Jones In the event that such Dispute is not resolved on an informal basis within 30 Business Days after one party delivers the Dispute Notice to the other party, either party may, by written notice to the other party ( Escalation to Executive Notice ), refer such Dispute to the executives of each party set forth below (or to such other person of equivalent or superior position designated by such party in a written notice to the other party) ( Executive(s) ) Executive of APL Brian Smith CEO, APL One Century Way NY, NY Executive of Smith Jones Roger Adams CEO, Smith Jones 221 Hamburg Lane Berlin, Germany Questions Step 1 Analyze the Dispute Resolution Clause and outline the steps the parties must take to move forward with their contract dispute What is required of APL under the clause in its contract with Smith Jones before it can move forward with a lawsuit against Smith Jones, Inc Be precise as to timing and requirements of the parties to move forward with their claims Step 2 Evaluate the drafting of this provisions Does it meet the contract drafting requirements discussed earlier in the semester Defend your answer Step 3 Suppose the parties agree to mediate this dispute In preparing for the mediation analyze and respond to these questions (please prepare the responses to each question in a paragraph format) 1 Why might the parties enter into a negotiation, what interests and motivations do each side have to mediate this dispute 2 What is the best outcome for each side What is the worst outcome 3 If the negotiations fail, what is each side's best alternative for moving forward 4 Did Smith Jones breached its contract with APL why or why not

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Background: In 2020, Advanced Pharmaceuticals, Limited (APL) and Smith Jones, Co. entered into a joint marketing/distribution agreement for Tranquilium, an anti-anxiety medication. As part of

Background:

In 2020, Advanced Pharmaceuticals, Limited (APL) and Smith Jones, Co. entered into a joint marketing/distribution agreement for Tranquilium, an anti-anxiety medication. As part of the agreement Smith Jones was provided the European distribution rights and APL maintained its U.S. distribution rights.

The relationship between APL and Smith Jones was highly lucrative for both parties. The first year alone APL made $400 million off of their Tranquilium distribution agreement and Smith Jones made $250 million. Subsequently the parties extended their distribution agreement to include five more drug products grossing over a billion in annual combined revenue for APL and Smith Jones. The parties maintain that this longstanding relationship is essential to each company's continued longevity.

APL and Smith Jones continue to maintain the distribution agreement for Tranquilium. While Tranquilium includes side effects such as sleepiness and drowsiness, it was not approved by the FDA as a sleep medication. As such APL was limited to marketing Tranquilium as an anti-anxiety medication in the United States. In order to maintain continuity over the product's advertised usage, APL communicated to its distributors that distributors should not market the drug as anything other than an anti-anxiety medication. However, this term was not included in the contract.

In its agreement with APL, Smith Jones agreed to "market, advertise, promote, and sell the Goods to Customers in a manner that reflects favorably at all times on Goods and the good name, goodwill, and reputation of Seller and consistent with good business practice, in each case using its best efforts to maximize the sales volume of the Goods."

This last year, Smith Jones ran a series of ads in Germany advertising Tranquilium as "the ultimate sleep medication." In the ads Smith Jones promised consumers the "best sleep of their lives." Shortly, after these ads ran APL sent a cease and desist letter to Smith Jones demanding Smith Jones immediately pull the advertisements. APL also threatened to cancel the distribution agreement. Smith Jones has pulled the ads and is concerned about APL's threat to cancel the contract for as a result of Smith Jones' alleged breach.

Dispute Resolution Clause:

Dispute Resolution

Exclusive Dispute Resolution Mechanism. The parties shall resolve any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof (each, a "Dispute"), under the provisions of Sections 2 through 4. The procedures set forth in Sections 2 through 4 shall be the exclusive mechanism for resolving any Dispute that may arise from time to time and Sections 2 through 4 is an express condition precedent to binding arbitration]of the Dispute.
Negotiations. A party shall send written notice to the other party of any Dispute ("Dispute Notice"). The parties shall first attempt in good faith to resolve any Dispute set forth in the Dispute Notice by negotiation and consultation between themselves, including not fewer than two negotiation sessions attended by the CEO for APL and by the CEO for Smith Jones. In the event that such Dispute is not resolved on an informal basis within 30 Business Days after one party delivers the Dispute Notice to the other party, either party may, by written notice to the other party ("Escalation to Executive Notice"), refer such Dispute to the executives of each party set forth below (or to such other person of equivalent or superior position designated by such party in a written notice to the other party) ("Executive(s)").

Executive of APL:	Brian Smith
CEO, APL
One Century Way
NY, NY
Executive of Smith Jones:	Roger Adams
CEO, Smith Jones
221 Hamburg Lane
Berlin, Germany

Questions:

Step 1: Analyze the Dispute Resolution Clause and outline the steps the parties must take to move forward with their contract dispute. What is required of APL under the clause in its contract with Smith Jones before it can move forward with a lawsuit against Smith Jones, Inc.? Be precise as to timing and requirements of the parties to move forward with their claims.

Step 2: Evaluate the drafting of this provisions. Does it meet the contract drafting requirements discussed earlier in the semester? Defend your answer.

Step 3: Suppose the parties agree to mediate this dispute. In preparing for the mediation analyze and respond to these questions (please prepare the responses to each question in a paragraph format):

1. Why might the parties enter into a negotiation, what interests and motivations do each side have to mediate this dispute?

2. What is the best outcome for each side? What is the worst outcome?

3. If the negotiations fail, what is each side's best alternative for moving forward? 4. Did Smith Jones breached its contract with APL why or why not?