The issue decided in this 32-page decision of the Delaware Court of Chancery involved the enforceability of a term sheet for a licensing agreement and whether or not it had all of the essential elements of an enforceable agreement.
Brief Summary of Background Facts
This decision chronicles the latest stage in a long-running breach of contract case between PharmAthene and SIGA. The opinion addresses a dispute over a Licensing Agreement Term Sheet (“LATS”). SIGA takes the position that the LATS was not binding, and was merely a “agreement to agree.” By contrast, PharmAthene claimed that the LATS was binding and sued to enforce the agreement. SIGA moved for summary judgment.
Highlights of Legal Principles Discussed
The Court began its legal analysis with a recitation of the standard for summary judgment and the important principle that the Court maintains the discretion to deny summary judgment “if a more thorough development of the record were helpful to clarify the law or its application.” Ultimately, that discretion was applied to deny summary judgment in this case.
The opinion focused on the essential elements necessary in order for a contract to be binding. Stated in another way, the Court had to decide what the essential terms are that contracting parties must agree on, in order for a contract to be binding. One general principle is that a contract cannot be enforced if it is subject to future negotiations which would make it, by definition, a mere “agreement to agree.” Sub-issues that must be addressed when discussing these applicable principles are as follows: (1) Whether the parties intended to be bound by the document; and (2) Whether the document contains all the essential terms of an agreement.
The Court recited the test stated by Chancellor Chandler in a previous decision for determining whether all essential terms have been agreed upon:
“Whether a reasonable negotiator in the position of one asserting the existence of a contract would have concluded, in that setting, that the agreement reached constituted agreement on all the terms that the parties themselves regarded as essential and thus that the agreement concluded the negotiations . . ..” See footnote 39. (emphasis in original).
Regarding the request for specific performance, the Court also noted that the same essential elements would be a prerequisite for specific performance. That is, under Delaware law, a party seeking the equitable remedy of specific performance “must prove the existence and terms of an enforceable contract by clear and convincing evidence.” The Court denied the summary judgment motion in order to allow for a more fully developed factual record and based on the well accepted equitable maxim that: “Equity will not suffer a wrong without a remedy.” See footnote 56. The Court reasoned that PharmAthene has adduced sufficient facts to support one or more of its claims that SIGA breached its agreement with PharmAthene.
The Court, however, expressed doubt that PharmAthene could adequately establish damages at trial based on the general rule that a plaintiff can only recover those damages which can be proven with reasonable certainty. See footnote 58. The Court also recognized that it is difficult to accurately predict damages related to a new business with an unproven technology. (citing Amaysing Techs. Corp. v. CyberAir Commc’ns, Inc., 2004 WL 1192602, at *4-5 (Del. Ch. May 28, 2004)).
On the issue of damages, the Court recognized the challenges but concluded that they were not insurmountable and allowed the claims to go to trial. Moreover, an issue arose about the general principle that damages must be established as of the date of the breach. The Court followed other case law which “suggests that courts must be circumspect about considering events that occurred after an alleged breach for purposes of calculating damages. Nevertheless, in limited circumstances, it is appropriate to do so.”
In this case, the Court concluded that PharmAthene would be allowed to show post-breach information relevant to determining appropriate damages or other form of relief. However, the Court rejected the argument that patent damages would be allowable because the Court held that this is not a patent infringement case, and therefore, patent damages would be inappropriate in this breach of contract action.