JPM 2026: CRE obligations in life sciences partnering agreements

One major question in defining CRE is whether to use an objective or a subjective standard. The former measures performance against what a reasonable company in the same industry, with similar size and resources, would do under comparable circumstances. The objective standard is benchmarked to industry norms rather than to the specific party's internal priorities. In contrast, a subjective CRE standard is tied to the level of efforts the specific party would typically use to accomplish the relevant objective given that party's own actual size, resources, and business priorities. Choosing between these standards impacts how diligence will be evaluated if disputes arise and shapes parties' expectations about performance.

Just as important as the CRE standard is the manner in which the diligence obligation is woven into the partnering agreement. CRE does not necessarily impose a requirement to commercialize in all parts of the world; however, there may be an agreed upon obligation to use CRE to commercialize within certain countries or territories (e.g., “in all major markets”). Similarly, CRE does not necessarily require a product to be launched in all indications, but the parties may tie the diligence obligations to certain specified indications. And the timing of the diligence obligation can be critical, as the licensee will want to avoid being bound to CRE at a time when it has not received the necessary training, support, and technology transfer to successfully develop and commercialize the licensed product.

Where a broad definition of CRE is adopted, it tends to be difficult for a licensor to prove a breach. That being the case, recent case law casts some doubt as to the outcome of CRE-related disputes, as courts have shown a willingness to undertake a detailed review of the facts and consider numerous factors behind companies' decisions, resulting in exhaustive discovery, analysis and debate over prioritization decisions. The potential for litigation on CRE terms means that if a company deprioritizes a product, it should be prepared to defend that decision in court, and should thoroughly document its decision-making process.

There is no “one size fits all” solution for crafting CRE terms in a contract, so parties should not rely on boilerplate contract provisions. Companies must consider whether there should be a subjective or objective standard, the factors that may be considered in assessing CRE, as well as the scope and timing of the CRE obligations, often taking into account factors specific to the licensed product at issue. 

Authored by Cullen Taylor and Hank Watsky