No Bite on Parties’ Unenforceable Agreement to Agree to Sell Apple Trees

By on September 9, 2020

The US Court of Appeals for the Federal Circuit affirmed a grant of summary judgment, finding that the option provision in the parties’ contract was an unenforceable agreement to agree. Phytelligence, Inc. v. Wash. State Univ., Case No. 2019-2216 (Fed. Cir. Aug. 27, 2020) (Reyna, J.).

Phytelligence is an agricultural biotechnology company that used tissue culture to grow trees for sale to nurseries and growers. In 2012, Phytelligence and Washington State University (WSU) began discussing an arrangement to grow WA 38 apple trees, a new apple cultivar that WSU developed and patented. The parties executed a propagation agreement, which included a provision that granted Phytelligence an option to participate as a provider and/or seller. If WSU’s cultivar became available for licensing, Phytelligence would need to sign a separate contract with WSU or WSU’s agent to exercise the option to become a provider and/or seller.

WSU eventually began requesting proposals from companies interested in commercializing WA 38. Phytelligence did not submit a proposal. In 2014, WSU accepted a proposal from Proprietary Variety Management (PVM) and entered into a management contract granting PVM an exclusive license to propagate and sell WA 38. Three years after WSU entered into this management contract, Phytelligence notified WSU that it wanted to exercise its option to participate as a provider and/or seller under the propagation agreement. WSU responded that under the propagation agreement, Phytelligence had to sign a separate contract with WSU to exercise the option and directed Phytelligence to PVM. Phytelligence rejected all of PVM and WSU’s options for selling WA 38, and the agreement between the parties was terminated.

Phytelligence sued WSU, alleging breach of the propagation agreement and seeking damages and specific performance. WSU moved for summary judgment, arguing that the option provision of the propagation agreement was an unenforceable “agreement to agree.” The district court agreed and granted WSU’s motion. Phytelligence appealed.

The Federal Circuit affirmed the dismissal. The Court stated that an agreement to agree was an agreement to do something that requires a further meeting of the minds, and without such a meeting, the agreement would not be complete. The Court found that an agreement to agree is unenforceable because courts are unable to fix the liability of parties based on agreements that are too indefinite and uncertain. Turning to the agreement between Phytelligence and WSU, the Court explained that the plain language of the propagation agreement required the parties to sign a separate contract to exercise the option, thus rendering the provision an unenforceable agreement to agree. The Court also rejected Phytelligence’s argument that the extrinsic evidence supported its theory that the option was an enforceable contract with open terms. The Court instead found that the communications between the parties revealed that WSU did not commit to any definite terms for a future license with Phytelligence.

Neha KhandhadiaNeha Khandhadia
Neha Khandhadia advises clients on litigation matters. Click here to read Neha Khandhadia's full bio. 

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