Best Efforts’ Vs. ‘Reasonable Efforts’: Why One Word Can Shift Millions in Liability

Introduction

Parties entering into contracts in any scenario have the aim of achieving the final result to its finest form, and to accomplish the required task, the contract imposes obligations on the parties to perform and deliver it in a certain way, as per their ability. So where precision matters, a single word in such a commercial contract can represent the nature and level of the obligation and set a standard for the parties, which can lead to consequences, whether it be legal or financial. Therefore, the terms ‘Best Efforts’, ‘‘Reasonable Efforts’’ are often used interchangeably, but not understood, and over the years it has been open to interpretation. Because of these phrases, high-profile cases and agreements have led to lawsuits between the parties where the best effort is understood as doing the work to the best of the ability and the high standard as compared to the ‘Reasonable Efforts’. This article explores the use of the phrases in licensing deals with real-world examples. It also deals with how the two phrases create different levels of obligation in contract, as there is no specific set of standards under the ‘Best Efforts’ and ‘Reasonable Effort’ clauses, they in a way, lack clarity on how to approach the contract.^[1]

Before diving into the detailed discussion about the two phrases, let us understand the basic meaning and differences between the two. The term ‘Best Efforts’ means to give your 100 per cent and it is expected of you that you leave no stone unturned. In the Atmospheric Diving Systems Inc. v. International Hard Suits Inc.^[2] In this judgement, the Court concluded that the term "‘‘Best Efforts’’" imposes a greater responsibility on the party to fulfil its promise than other endeavour provisions, such as the ‘Reasonable Efforts’ or all reasonable endeavours clause in a commercial contract. However, for “‘Reasonable Efforts’,” it is inferred from the name that it is a slightly toned-down version of ‘‘Best Efforts’’ and will have fewer obligations.

Scope of ‘Best Efforts’ and ‘‘Reasonable Efforts’’.

A party must use all ‘Reasonable Efforts’ to accomplish a certain result under the idea of ‘Best Efforts’, which denotes a high degree of performance in contractual commitments. The ‘Best Efforts’ provision in contract discussions places a strict obligation to utilize every possible means to achieve the goal of the agreement. ‘Best Efforts’ necessitate proactive and cautious activity, which often requires a large investment of resources and deliberate activities, in contrast to less demanding jobs. Depending on the specifics of the contract, industry norms, and the abilities of the parties, the scope of ‘Best Efforts’ varies. It does not, however, compel a party to do acts that contradict its basic principles or subject it to unwarranted stress. Courts typically consider the parties' objectives during contract talks in addition to the specific performance requirements outlined in order to interpret ‘Best Efforts’. This criterion ensures that the party bound makes substantial, earnest efforts that go beyond mere formality or restricted compliance by finding a balance between rigorous adherence and practical feasibility.

In order to comply with the requirements of the contract and industry standards, a party must act cautiously and sensibly while making ‘Reasonable Efforts’. The legal limits of ‘Reasonable Efforts’ are determined by what can be done without imposing an undue burden and what is objectively fair. Evaluating acts in light of recognized norms and the specifics of the duty are often necessary for practical implementation.^[3]

Pharma Licensing Deals And Distribution Agreements

The most regard ‘Best Efforts’ being a higher level of performance, as compared to ‘Reasonable Efforts’. Study of case law seems to indicate that ‘Best Efforts’ means that a party must strive within the best of its ability so as to accomplish the intended goal even though this may necessitate certain sacrifices. Conversely, ‘Reasonable Efforts’ is the same as requiring that party to preferably do what a prudent person or firm would do in the same situation with consideration being given to the commercial interests and resources of the party. No industry is more affected by the existence of these divergent standards than the pharmaceutical industry, where the development and commercialization of pharmaceuticals is commonly negotiated by utilizing milestone agreements.^[4]

This difference was instrumental in the recent case of Shareholder Representative Services, LLC v. Alexion Pharmaceuticals Inc.^[5] When Syntimmune was acquired by Alexion, it was valued at 1.2 billion dollars and would pay 800 million at the accomplishment of certain milestones in relation to the monoclonal antibody ALXN1830. The agreement said that Alexion will employ commercially ‘Reasonable Efforts’ to meet these milestones within seven years. But after internal restructuring and the COVID 19 pandemic, Alexion de-prioritized the project to an extent that it finally ended it. Looking back, the former Syntimmune shareholders filed a lawsuit after accusing Alexion of not making commercially ‘Reasonable Efforts’ as per the acquisition agreement.^[6]

In the Delaware Court of Chancery decision, the plaintiffs won, and the Court held that Alexion had breached the clause. Notably, the court followed an objective approach to the meaning of the term commercially ‘Reasonable Efforts’ and sought, what another drug company in the circumstances of similar standing would have done in similar situations. Alexion provided insufficient reason as to why it was taking this internal decision with regard to its focus on other drugs in its pipeline and becoming in-line with the strategic objectives of its parent company AstraZeneca. The court reached a conclusion that a similar company performing prudently would not have conceded the project in a similar fashion. Even requiring a lesser standard, as in the case of simply saying the agreement was under the ‘Best Efforts’ standard, would have further shifted the burden on Alexion, but as the outcome in this case demonstrates, even the term reasonable or commercially ‘Reasonable Efforts’ carries with it some significant weight and responsibility.^[7]

An opposite situation took place in Himawan v. Cephalon^[8], a drug Reslizumab case. Cephalon had purchased Ception Therapeutics for up to 400 million dollars with most of the amount paid conditional to development milestones. Under this agreement, Cephalon was under the obligation to undertake the development of the drug using commercially ‘Reasonable Efforts’. The sellers took the company to court on grounds that they failed to exercise due diligence when the company finally shelved the development of one of the possible indicators of the drug. What is interesting is that in this case the court went in favor of Cephalon. The language of the agreement could have been interpreted as more inwardly-focused as Cephalon was able to evaluate the commercial feasibility of the deal in the light of its business requirements, costs, and probability of success. The court held that the decision of Cephalon to discontinue development had been in line with the behavior of a prudent corporation in its place. The court did not require exceedingly excessive fear in searching for commercially ‘Reasonable Efforts’ as is the case in Alexion. The present activity demonstrates the ways different courts can perceive the phrase that is defined as the commercially ‘Reasonable Efforts’ and use it differently when this criterion is objective (applying to the standards of the industry) and when the criteria is subjective (applicable based on the practices of this particular company).

Going to the world of distribution agreements, the same values are present. There is Russell v. Zimmer^[9], Russel signed an exclusive distributor agreement with Zimmer, with a provision that Zimmer needed to take the commercially ‘Reasonable Efforts’ to sell the product. The court next looked at the meaning of ‘Reasonable Efforts’ later after the inventor sued Zimmer claiming that the latter had not marketed the product with adequate intensity. It held that the conduct of Zimmer in working with the promissory notes was just in line with normal conduct of its business and that it was not under any obligation to make any efforts surpassing what it normally did in making sales. What it did was to basically approve a subjective translation whereby Zimmer can judge an effort based on its own internal standards, other than an industry standard.

These examples highlight the heavy burden that one word, in this case, the word best and the word reasonable can possibly bear when the contract is interpreted. Whereas under the provision of ‘‘Best Efforts’’ the party is compelled to go all the way to reach a goal, at the cost of making sacrifices, an obligation to use ‘Reasonable Efforts’ instead of ‘Best Efforts’ provides the party with greater scope to consider its commercial goals and weigh those goals against the obligations it is subjected to. These two standards can prove the contrast between success and litigation in the context of pharmaceutical licensing and distribution in which negotiations are usually characterized by conditional payments and strategic investments.

With this much at stake, special attention should be given to the effort clauses during the negotiation of contracts within the industries. It can be an expensive matter to be confused as to whether ‘Best Efforts’ are called or ‘Reasonable Efforts’, and as the above cases show, to have lengthy legal fights. That when the agreement is entered into as a licensee forced to develop the drug or as a distributor forced to sell the drug, it is essential to ensure that it is defined exactly what is expected to be done and whether such work is supposed to be done on a subjective or an objective basis in order to not only orient the expectations but also to negate liability by being in a non-contractual agreement or a non-liability agreement.

Conclusion

To sum up, despite possible similarities between the terms under discussion seemingly portrayed in writing, there are great differences in legal hermeneutics. Insufficiently generous standard selection in industries where time lines of development are long and costs involved massive can not only rule out the road that a party is obliged to pursue, but it can also figure out whether they will be answerable by the end.

Author: Ananya Jha, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

^[1]Endnote

 Best Efforts, Reasonable Efforts, Commercially Reasonable Efforts: Is Distinguishing Among them Worth the Effort? | New York Business Law and Commercial Litigation Blog, https://www.nybusinesslaw.com/2021/01/best-efforts-reasonable-efforts-commercially-reasonable-efforts-is-distinguishing-among-them-worth-the-effort/ (last visited Jul 20, 2025).

^[2] Inc. v. International Hard Suits Inc [1994] BCJ no 493.

^[3] Robert E Scott et al., Anticipating Litigation in Contract Design.

^[4] Omri Ben-Shahar & Ariel Porat, "Foreword: Fault in Contract Law," 107 Michigan Law Review 1341 (2009).

^[5] Shareholder Representative Services, LLC v. Alexion Pharmaceuticals Inc. C.A. No. 2020-1069-MTZ.

^[6] Joseph A. DiMasi, Henry G. Grabowski & Ronald W. Hansen, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20 (2016), https://www.proskauer.com/blog/commercially-reasonable-efforts-clauses-in-drug-development-deals-what-level-of-protection-do-they-really-provide (last visited Jul 20, 2025).

^[7] “Commercially reasonable efforts” in licensing agreements: what needs to be considered? | Osborne Clarke, https://www.osborneclarke.com/insights/commercially-reasonable-efforts-licensing-agreements-what-needs-be-considered (last visited Jul 20, 2025).

^[8] Jeff Himawan, et al. v. Cephalon, Inc., et al., Case No. 2018-0075-SG (Del. Ch. 2024).

^[9] Russell v. Zimmer, Inc., No. 22-2529 (7th Cir. 2023).