ORDER ON DEFENDANT FLOREAT, INC.'S MOTION FOR SUMMARY JUDGMENT

DONALD D. ALSOP, Senior United States District Judge

This case involves determining whether a contract between the parties remains enforceable. The principals of Plaintiff Multi-Tech Systems, Inc. ("Multi-Tech") and Defendant Floreat, Inc. ("Floreat") signed the contract in question on April 18, 1995. Multi-Tech filed this declaratory judgment action after Floreat sought to assert its rights under that contract. Federal jurisdiction is predicated on diversity of citizenship, and the parties agree that Minnesota law applies in the case. Multi-Tech alleges that the contract is not enforceable because a condition precedent to the agreement failed. In the alternative, Multi-Tech alleges that the parties rescinded the contract and that Floreat is estopped from enforcing the contract. Floreat denies that the contract is unenforceable for any reason and alleges by way of a counterclaim that Multi-Tech breached the contract. Floreat has moved for summary judgment on its counterclaim, arguing in essence that the evidence upon which Multi-Tech relies is inadmissible or otherwise insufficient as a matter of law to support Multi-Tech's position. Following oral argument, the parties at the Court's request provided supplemental briefing on the threshold question of whether Article 2 of the Uniform Commercial Code as enacted in Minnesota (hereinafter "the UCC") applies to the agreement.

Summary judgment is appropriate if no genuine issue of material fact exists and if the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The Court will deny Floreat's motion because genuine issues of material fact exist concerning Multi-Tech's claims.

I.

Most of the pertinent facts are documented in a series of written agreements and proposed agreements between the parties. On November 10, 1992, Multi-Tech and Floreat entered into a contract for the joint "design and development of the product known by both parties as the MultiExpress PCS and the MultiModem PCS." (Maitra Aff. Ex. A, hereinafter "the 1992 Contract"). In return for Floreat's work and for certain intellectual property rights in the MultiExpress PCS and MultiModem PCS product, Multi-Tech agreed in the 1992 Contract to pay Floreat a fixed sum of $200,000 along with sliding scale royalty payments on sales of the completed product: $50 per unit for the first 5,000 unit sales, $35 per unit for the next 5,000 unit sales, and $25 per unit for any additional unit sales. Id.

The parties subsequently contemplated various technical modifications to the Multi-Express PCS and the Multi-Modem PCS product and signed additional contracts relating to those proposed modifications. Multi-Tech and Floreat entered into a supplemental agreement regarding unspecified "improvements and enhancements" to the MultiExpress PCS and MultiModem PCS product on April 17, 1993. (Sharma Aff. Ex. 3). Multi-Tech agreed to pay Floreat an additional $200,000 and to pay royalties on the same sliding scale as the 1992 Contract for sales of units containing those improvements and enhancements. Id. On December 9, 1993, Multi-Tech agreed to pay Floreat $150,000 and to a sliding scale of royalty payments similar to that in the 1992 Contract in return for Floreat's role in designing and developing an improved "Multi-Modem PCS-IV." (Sharma Aff. Ex. 4). Another agreement dated September 30, 1994, applied to the design and development of "the Single DSP Design for the PCS Modem" (Maitra Aff. Ex. B, hereinafter "the 1994 Contract"), which the parties intended to be an improved replacement for the product contemplated in the 1992 Contract. (Sharma Aff. ¶ 11, 13). Unlike the other agreements, the 1994 Contract required Multi-Tech to pay only royalties at a flat rate of $5 per unit sale of a product incorporating the Single DSP Design. The parties did not complete development of any of the proposed modifications contemplated in the agreements from 1993-94, however, and Multi-Tech paid no royalties to Floreat for a product incorporating such modifications. (Sharma Aff. ¶¶ 8, 9, 11).

In August 1994, Multi-Tech and Floreat began negotiating revisions to the original 1992 Contract. Multi-Tech sent a signed contract proposal to Floreat dated August 15, 1994, for the purpose of memorializing an agreement to reduce Multi-Tech's royalty payments under the 1992 Contract to $5 per unit sale. (Sharma Aff. Ex. 5.) Although Floreat never signed that proposal, Multi-Tech paid, and Floreat accepted, royalty payments of $5 per unit sale of the Multi-Tech PCS and MultiModem PCS product from September 1994 until Multi-Tech ceased marketing that product in March 1997. (Sharma Aff. ¶¶ 10, 12 Supplemental Sharma Aff.)

Multi-Tech and Floreat signed an agreement explicitly amending the 1992 Contract on April 18, 1995. (Sharma Aff. Ex. C, hereinafter "the 1995 Contract"). The 1995 Contract extended the scope of the 1992 Contract to include units incorporating the Single DSP Design for the PCS Modem and to include a patent application Multi-Tech had pending. The 1995 Contract also provided that the royalty payments to Floreat under the 1992 Contract would be reduced to $1 per unit sale in return for Multi-Tech paying Floreat 50% of any licensing royalties resulting from the above-mentioned patent. Finally, in a section entitled "Reservation of Rights," the 1995 Contract provided that the agreement transferred "[n]o intellectual property rights," that the agreement "express[ed] the full and complete understanding between the parties," and that the agreement "may be modified only in writing, signed by each party."

According to Multi-Tech, another company was considering purchasing Floreat in April 1995, and the primary purpose of the 1995 Contract was to increase the sales price of Floreat in that transaction. (Sharma Aff. ¶ 15). This sale of Floreat in fact did not take place, and Multi-Tech alleges that the principals of Floreat and Multi-Tech thereafter orally agreed to rescind the 1995 Contract and to maintain the royalty payments to Floreat at $5 per unit sale. Id. Multi-Tech never paid royalties of $1 per unit sale to Floreat, but the parties also never signed an agreement to cancel or rescind the 1995 Contract.

The patent application to which the 1995 Contract refers eventually matured into Patent No. 5,452,289 ("the Patent"). (Maitra Aff. ¶ 7). Multi-Tech commenced actions against several computer technology companies in and after February 2000, alleging that those companies had infringed Multi-Tech's intellectual property rights, including Multi-Tech's rights under the Patent. Multi-Tech began settling those actions in 2001. According to Floreat, the settlement agreements completed to date provide for payment to Multi-Tech of licensing royalties related to the Patent. Floreat claims that it is entitled to 50% of those licensing royalties by the terms of the 1995 Contract. Multi-Tech claims, based on its discussions with Floreat and on Floreat's conduct, that it has no obligations to Floreat under the 1995 Contract.

II.

Floreat's primary argument in support of its motion is that evidence outside the four corners of the 1992 and 1995 Contracts is immaterial to resolving this dispute. Floreat notes that the 1995 Contract fully integrates the agreement between the parties and includes a provision prohibiting oral modification of the agreement's terms. Although the courts of Minnesota recognize the common law rule "that a written contract can be varied or rescinded by oral agreement of the parties, even if the contract provides that it shall not be orally varied or rescinded," Larson v. Hill's Heating Refrigeration of Bemidji, Inc., 400 N.W.2d 777, 781 (Minn.Ct.App.), review denied (Minn. Apr. 17, 1987), Floreat maintains that the 1992 and 1995 Contracts are subject to the more stringent written modification requirements of the UCC, which provides that a "signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded." Minn.Stat. § 336.2-209(2). Whether Multi-Tech may rely upon evidence of an oral cancellation of the 1995 Contract, then, depends in large part upon whether the UCC applies to the 1995 Contract.

The UCC applies to "transactions in goods," Minn.Stat. § 2-102, and the UCC defines "goods" in pertinent part as things "which are moveable at the time of identification to the contract for sale." Id. at § 2-105(1). Floreat cites a number of cases standing for the proposition that computer software is "goods" within the meaning of the UCC when the software code exists on a disc or other medium that is "tangible, moveable, and available in the marketplace." See, e.g., Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675 (3rd Cir. 1991) (applying Pennsylvania law). See also Prof'l Data Processing, Inc. v. D.J. Meyer, Inc., No. C0-92-215, 1992 WL 196289, at *4 (Minn.Ct.App. Aug. 18, 1992) (unpublished opinion) (holding that a software system qualifies as "goods" under the UCC). As Floreat characterizes the 1992 and 1995 Contracts, Floreat's obligation was to produce software that Floreat sold to Multi-Tech and that Multi-Tech then incorporated into the Multi-Tech PCS and MultiModem PCS product. This sale of software, in Floreat's view, is a transaction in goods and thus within the ambit of the UCC.

The Court agrees as a general matter that the sale of software in a tangible medium is a "transaction in goods." The record, however, does not support Floreat's contention that the 1992 and 1995 Contracts envision that sort of transaction between Floreat and Multi-Tech. Floreat did not agree to sell Multi-Tech a certain quantity of Floreat's software, nor did Floreat agree to customize its software for later resale in accordance with Multi-Tech's specifications. Instead, in the language of the 1992 Contract, Floreat agreed to provide "work" toward "jointly developing" a new product with Multi-Tech. The 1995 Contract similarly refers to "the hardware and software design and development" of the MultiExpress PCS and MultiModem PCS product. Much of the work for which Multi-Tech paid Floreat between 1992 and 1995, furthermore, did not result in a marketable product. This language and course of dealing suggests that Multi-Tech did not pay Floreat for the sale of software but rather for Floreat's contribution of knowledge and expertise to the design and development of a product that included a software component. The few cases considering the question indicate that the UCC does not apply to an agreement to design and develop a product, even if compensation under that agreement is based in part on later sales of that product. See, e.g., Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 432 (S.D.N.Y. 1996) (applying New York law and holding that a license agreement allowing one party to customize another party's software and to market a product containing the customized software was not a transaction in goods within the scope of the UCC).

Floreat argues that Architectronics is distinguishable on its facts and thus is not pertinent to its dispute with Multi-Tech. The Architectronics court characterized the licensing agreement at issue in that case as a transfer of intellectual property rights, id., and held that the UCC did not apply because intellectual property rights are not "goods" under the UCC. Id. (citations omitted). Floreat seeks to distinguish Architectronics on the ground that the 1995 Contract explicitly states that it transfers no rights in intellectual property. Even granting that Floreat's distinction is valid, however, certain types of transactions not involving intellectual property rights also are outside the scope of the UCC. Under Minnesota law, for example, the UCC does not apply to contracts for the provision of services alone, McCarthy Well Co., Inc. v. St. Peter Creamery, Inc., 410 N.W.2d 312, 315 (Minn. 1987), or to contracts for the provision of both goods and services if the services component of the agreement is the predominant feature of the transaction. AKA Distrib. Co. v. Whirlpool Corp., 137 F.3d 1083, 1085 (8th Cir. 1998); Vesta State Bank v. Indep. State Bank of Minn., 518 N.W.2d 850, 854 (Minn. 1994). Any software in a tangible medium that Floreat provided to Multi-Tech pursuant to the 1992 and 1995 Contracts at best was incidental to the predominant purpose of those agreements, which was to develop and improve the MultiExpress PCS and MultiModem PCS product. Contribution of knowledge and expertise to the development of a product is not "goods" within the meaning of the UCC, and the 1992 and 1995 Contracts accordingly are not subject to the UCC.

III.

Given that the common law applies to the 1992 and 1995 Contracts, Multi-Tech has produced sufficient evidence to establish genuine material factual issues as to the claims it raises. Parol evidence is admissible in Minnesota to prove the failure of a condition precedent to an integrated contract, Jansen v. Herman, 230 N.W.2d 460, 463 (Minn. 1975), and to prove the rescission of an integrated contract. Larson, 400 N.W.2d at 781. Multi-Tech has presented evidence of an oral understanding between the parties that the 1995 Contract was conditioned upon the sale of Floreat and that the parties rescinded the 1995 Contract when that sale did not occur. Minnesota also allows a party to establish waiver or an equitable estoppel as a defense to enforcement of a contract when that party has altered his position for the worse in good faith reliance upon the conduct of the party seeking to enforce the contract. See Republic Nat'l Life Ins. Co. v. Marquette Bank Trust Co. of Rochester, 295 N.W.2d 89, 93 (Minn. 1980) (waiver); Moberg v. Commercial Credit Corp., 42 N.W.2d 54, 58 (Minn. 1950) (equitable estoppel). On this record, a jury could find that Multi-Tech continued to pay royalties to Floreat under the 1992 Contract, and that Floreat accepted those payments, even after the 1995 Contract reducing those royalties was in effect.

IV.

For the foregoing reasons, the Court hereby ORDERS that Floreat's motion for summary judgment is DENIED in all respects.