An “Agreement to Agree” Is Unenforceable Under Washington State Law

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PHYTELLIGENCE, INC. v. WASHINGTON STATE UNIVERSITY

Before Prost, Reyna, and Stoll.  Appeal from the United States District Court for the Western District of Washington.

Summary: Under Washington law, a contract must be definite enough for a court to enforce it without needing to supply missing terms.

Washington State University (“WSU”) obtained a plant patent for a cultivated variety of apple trees. WSU entered into a Propagation Agreement with Phytelligence, Inc., which allowed Phytelligence to propagate the trees, but not to sell them.  Instead, the Agreement provided that Phytelligence is “hereby granted an option” to sell the trees, but “will need to sign a separate contract with [WSU], or an agent of [WSU], to exercise this option.”  The Agreement did not specify the terms of the “separate contract.”

Phytelligence later sought a license to sell pursuant to the option in the Agreement, but reached an impasse with WSU regarding the terms of the license.  When Phytelligence began selling and delivering the trees to a third-party without a license, WSU terminated the Agreement. Phytelligence then sued WSU in Washington state court, alleging that WSU breached the Agreement by refusing to grant a license on terms acceptable to Phytelligence.  WSU asserted patent and trademark infringement counterclaims, removed the action to the district court, and moved for summary judgment on the breach-of-contract claim.  WSU argued that the section in the Agreement granting the option was an unenforceable “agreement to agree.”  The district court granted summary judgment to WSU, and Phytelligence appealed.

Applying Washington law, the Federal Circuit found that the Agreement did not supply the material terms for the option, and therefore required a further meeting of the minds to make it binding.  Because the option was not binding, the Federal Circuit affirmed the grant of summary judgment to WSU

Editor: Paul Stewart

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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