Understanding Your Efforts Clause

Litigators familiar with pharmaceutical collaboration and merger agreements have surely run into the ubiquitous “efforts” clause. Whether couched in terms of “best efforts,” “reasonable efforts,” “commercially reasonable efforts,” or some other iteration, a licensee or purchaser of technology typically has some obligation to develop and market the licensor-seller’s technology. These clauses become critical where the agreement contains precise milestone events with lucrative payouts, but only a vague statement that the licensee should use reasonable efforts to achieve those milestones.

Without further elaboration or definition in the agreement, exactly what “best efforts” requires, if it requires anything at all, remains a mystery to even the most seasoned practitioners and judges, and state laws are fragmented. For instance, Illinois courts have held that without any actual requirements or explication, such clauses are unenforceable. See Clever Ideas, Inc. v. Citicorp Diners Club, Inc., 2003 WL 21982141 (N.D. Ill. Aug. 20, 2003) (in Illinois, “a simple promise to use ‘best efforts’ is unenforceable if no criteria exist by which to measure the effort.”).