Option to License Requiring New Contract Is Unenforceable

• Pages: 23-24
• Date: 01 July 2023
• Author: Frances Codd Slusarz
• Subject Matter: Civil Law

Published in Litigation News Volume 48, Number 4, Summer 2 023. © 2023 by the Amer ican Bar Association . Reproduced with pe rmission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in an y

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Sexist Statement

Requires Trial in

Wage Discrimination

Claim

By William H. N ewman, Litigation

News Associate Editor

An employer allegedly told a woman she

did not need a higher salary because her

husband was employed. That allegation

was sucient to avoid summary judg-

ment on the employee’s wage discrimi-

nation claim, according to the U.S. Court

of Appeals for the Seventh Circuit. In

Kellogg v. Ball State University, the court

held that a trial was necessary to deter-

mine whether the statement revealed

that the employer’s proered explana-

tion of the plainti’s pay rate was a pre-

text for discrimination. ABA Litigation

Section leaders believe that decisions

like this one should prompt employers to

address pay inequality.

In Kellogg, the plainti was a biol-

ogy teacher who alleged that her

school paid her less than a similarly

credentialed male chemistry teacher.

The school denied sex discrimination,

instead claiming the male teacher had

superior qualif‌ications and had been

hired after the school’s starting salaries

increased. The district court granted

summary judgment in favor of the

defendant, holding the plainti did not

meet her burdens under the Equal Pay

Act or Title VII of the Civil Rights Act.

The plainti appealed, arguing the

statement about her husband’s employ-

ment was evidence that the defendant’s

gender-neutral explanations for the pay

disparity were a pretext for discrimina-

tion. The defendant responded that it

was an irrelevant “stray remark” that

had “no real link” to the how the plain-

ti’s pay was determined. The defendant

also argued that the applicable statute

of limitations for discriminatory acts in

2006, when the comment was made, had

expired by the time the plainti f‌iled her

claim in 2018.

The appeals court disagreed that the

statement was a “stray remark” because

“it was a straightforward explanation”

of the plainti’s pay by someone with

the authority to determine it and during

negotiations over it. And it held that each

time an employer pays an employee in

connection with a discriminatory practice,

the statute of limitations begins on a new

claim. Accordingly, if the plainti’s 2018

pay was low because of a 2006 discrimi-

natory decision, the statute of limitations

did not preclude an examination of the

original decision.

The Seventh Circuit acknowledged

that the statute of limitations for employ-

ment discrimination claims has changed.

In 2009, Congress passed the Lily

Ledbetter Fair Pay Act. It states that

“each time wages, benef‌its, or other com-

pensation is paid, resulting in whole or in

part from [a discriminatory] decision or

other practice,” a new claim with its own

limitation period arises. The Kellogg deci-

sion recognized that under this law, the

plainti could cite her employer’s 2006

discriminatory act to support a timely

claim for a 2018 pay disparity.

But even without the Ledbetter Act,

the defendant’s remark may support the

plainti’s claim. “The court points out that

both the Seventh Circuit and the Supreme

Court have allowed older evidence to sup-

port a more recent claim, even when that

evidence might have established an earlier

claim that is now barred by the statute of

limitations,” notes Cassandra Robertson,

Cleveland, OH, chair of the Appellate

Subcommittee of the Litigation Section’s

Civil Rights Litigation Committee.

Employers can take proactive mea-

sures to address wage disparities.

They are “well-advised to conduct pay

equity assessments at regular intervals

and identify any statistical outliers,”

counsels Jerry M. Cutler, New York, NY,

cochair of the Section’s Employment &

Labor Relations Law Committee. “As to

any such outliers,” he advises, “employ-

ers should document their reasons sup-

porting such pay dierentials or take

prompt action to rectify pay disparities

that cannot be substantiated.

Option to License

Requiring New

Contract Is

Unenforceable

By Frances Codd Sl usarz, Litigation

News Associate Editor

The intentions of contracting parties

are meaningless unless the parties

agree on material terms. In Phytelligence,

Inc. v. Washington State University,

the plainti argued that the option to

license intellectual property in a contract

with the defendant was an enforceable

“agreement with open terms” rather

than an unenforceable “agreement to

agree.” The court disagreed, explaining

that the option contemplated a sepa-

rate licensing agreement. ABA Litigation

Section leaders view this case as a

reminder to include all material terms

in option agreements if parties want to

exercise them.

Phytelligence, Inc., was an agricul-

tural biotechnology start-up, organized

to commercialize an innovation devel-

oped by a Washington State University

Department of Horticulture professor.

In November 2012, the company started

negotiating a propagation agreement

with the university to grow trees using

the university’s proprietary WA 38 apple

cultivar. The agreement forbade the

company from selling WA 38 trees but

granted the company “an option to par-

ticipate as a provider and/or seller of

[WA 38 trees]” if the university decided

to license the cultivar. To exercise the

option, the company needed to “sign a

separate contract” with the university.

Although concerned about the

“wispy forward commitment” contained

in the option language, the company

signed the agreement. Years later, when

the company sought to exercise its

option, the university would not pres-

ent the company with “a separate con-

tract” to do so.

The company sued the university for

breach of contract in state court. The

university f‌iled counterclaims for pat-

ent and trademark infringement and

removed the case to federal court. The

university moved for summary judg-

ment, arguing that the language was

an unenforceable agreement to agree.

The company argued that the option to

license was an enforceable agreement

with open terms. The U.S. District Court

for the Western District of Washington

granted the university’s motion, and the

U.S. Court of Appeals for the Federal

Circuit armed.

The court of appeals relied on the

parties’ correspondence before execut-

ing the propagation agreement. In

response to the company’s request

for clarif‌ication of the license option,

the university stated that it had not

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