Updated: Oct 23, 2020
Phytelligence, Inc., Plaintiff-Appellant
v. Washington State University, Defendant-Appellee
August 25, 2020
Under Washington law, an “agreement to agree” is an agreement to do something that “requires a further meeting of the minds of the parties and without which it would not be complete.” Agreements of this type are unenforceable because Washington courts cannot determine the liabilities of parties based on agreements that are “too indefinite and uncertain.” This issue arose in a dispute over apple trees.
Phytelligence was an agriculture technology company that had developed a new method for rapidly growing fruit trees. At the end of 2012, the company entered into an agreement with Washington State University in which it would propagate (grow) a new cultivated variety (cultivar) of apples known as “WA 38.” This cultivar is now marketed under the trademark “Cosmic Crisp” and is covered by US Plant Patent 24210P3.
The Propagation Agreement only granted Phytelligence the right to grow/propagate WA 38 trees, not to sell them; however, Section 4 of this Agreement said that Phytelligence might have an “option” to “participate as a provider and/or seller” of the new apple cultivar. But the company would need to “sign a separate contract with [WSU], or an agent of [WSU], to exercise this option.”
Before it signed the Agreement, the company reached out to WSU to clarify that, under Section 4, it would need a separate license to sell WA 38 apple trees; the University responded in part by stating:
We have no idea how WA 38 will be licensed at this time. It would take any
form: under an open release through a nursery group, for example, to an
exclusive license with a company, group of individuals, coop., etc. That
decision has not yet been made, so there can be no guarantees made to
anyone at this point.
Phytelligence then signed the Agreement without suggesting any changes to Section 4.
Some months after the parties executed the Propagation Agreement, WSU sent out a request for proposals seeking an exclusive licensee to manage commercialization of the WA 38 cultivar. Phytelligence received a copy of the RFP, but did not submit a proposal. The University ultimately accepted a proposal by Proprietary Variety Management (PVM, a different agriculture technology company) to manage the commercialization of its new apple variety.
In 2017, Phytelligence sought to exercise its option (under Section 4 of the Propagation Agreement) to sell WA 38 trees, but—after discussing the matter with exclusive licensee PVM—the company did not wish to comply with PVM’s terms. Phytelligence then approached WSU directly; the University presented the company with three options for propagating and selling the apple trees “on equal footing with other propagators that had commercial rights” to the trees. Phytelligence rejected all three options.
In early 2018, WSU terminated its Propagation Agreement with Phytelligence because the company had allegedly sold and delivered WA 38 trees to a third party without a license. Phytelligence then sued in Washington State court, alleging that the University had breached the Propagation Agreement “[b]y entering into its arrangements with PVM and refusing to honor the obligations in the Propagation Agreement” (and more specifically, the “option” mentioned in Section 4 of that Agreement).
WSU responded by asserting patent and trademark infringement counterclaims; it also removed the action to federal district court where it moved for summary judgment, arguing that Section 4 was an unenforceable agreement to agree. Phytelligence’s opposition made the case that the disputed section was an enforceable “agreement with open terms.” The district court judge granted WSU’s motion.
On appeal, the company urged the Federal Circuit to view the Agreement’s Section 4 as an enforceable agreement with open terms, not as an unenforceable agreement to agree. The panel flatly rejected these arguments, noting that in an agreement with open terms, “the parties intend to be bound by the key points agreed upon with the remaining terms supplied by a court or another authoritative source, such as the Uniform Commercial Code.” By contrast, the disputed portion of the Propagation Agreement provides that Phytelligence is “granted an option,” but that Phytelligence “will need to sign a separate contract with [WSU], or an agent of [WSU], to exercise this option.” Because the agreement says that Phytelligence’s option turns on a future contract between the parties, “a further meeting of the minds of the parties” was required before Phytelligence could commercialize the apple trees. Section 4 of the Propagation Agreement is therefore an unenforceable agreement to agree.
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