This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
STATE OF MINNESOTA
IN COURT OF APPEALS
Data Recognition Corporation,
a Connecticut corporation,
Filed April 29, 2003
Hennepin County District Court
File No. CT017363
Dwight G. Rabuse, Kristin Leodrup Choi, Livgard & Rabuse, PLLP, 2520 University Avenue SE, Suite 202, Minneapolis, MN 55414 (for respondent)
Thomas F. Nelson, Jeffrey A. Eyres, Steven P. Zabel, Leonard, Street and Deinard, P.A., 150 South Fifth Street, Suite 2300, Minneapolis, MN 55402 (for appellant)
Considered and decided by Schumacher, Presiding Judge, Anderson, Judge, and Stoneburner, Judge.
G. BARRY ANDERSON, Judge
Appellant Scan-Optics, Inc. challenges the denial of its motion for partial summary judgment, arguing that because respondent’s Data Recognition Corporation claim is based in part on the validity of a patent claim, Minnesota’s district courts do not have subject matter jurisdiction. Appellant also argues that the district court made other procedural and evidentiary errors. Because respondent’s claim is essentially a contract claim and not a patent claim, and because the district court did not otherwise err, we affirm.
Respondent Data Recognition Corporation markets standardized test-scoring services in several states. Respondent wanted to improve its test-scoring procedures by moving from the traditional paper-grading method to an “on-screen” method that allows the test to be scanned, stored, and graded electronically. In 1999, appellant Scan-Optics, offered to help respondent upgrade its test-scoring procedures and equipment by developing an on-screen scoring system.
The two companies entered into a contract in which appellant agreed to provide respondent with a “fully-functional automated system for processing test booklets” along with all the necessary training, hardware, and software to begin grading tests on computer, rather than by hand. The contract also provided several “deadlines and performance milestones” as well as many warranties. Appellant warranted that it was the owner of all the software and had the authority to grant respondent the necessary licenses to operate the software. Appellant also warranted that respondent’s use of the licensed products would not violate the rights of any third parties and there were no current or threatened suits by any such third party.
Appellant missed several deadlines, and respondent was not able to use the on-screen scoring system as scheduled. These delays caused respondent to incur additional expenses and miss its own deadlines, while attempting to score tests from Louisiana, South Carolina, and Arkansas. The state of Arkansas eventually refused to renew its contract with respondent.
In May 2000, respondent received a letter from another test-scoring company, NCS Pearson (NCS), offering to sell respondent a license to use NCS’s patented on-screen scoring software and systems. In October 2000, NCS again wrote respondent and expressed the belief that respondent was currently, “or soon is likely to be, utilizing process and systems that could infringe on NCS Pearson’s On Screen Scoring patents.” Respondent notified appellant of NCS’s accusation in November 2000 and demanded that appellant indemnify respondent against the claim.
Respondent was concerned because NCS was seeking a license fee that would cost it millions of dollars annually. Both appellant and respondent began to look for examples of the use of the software, or “prior art,” that fell outside the scope of NCS’s patents. Respondent tried to purchase another company that already had a license, but was unable to do so. Moreover, respondent also learned that NCS had sued other test-scoring companies that had infringed on its patents and had been able to extract license agreements from those companies.
In May 2001, because of these delays in the project - but unrelated to the potential threat of litigation from NCS - respondent sued appellant in Hennepin County District Court asserting claims of breach of contract, breach of warranty, fraud and misrepresentation. On June 7, 2001, NCS again wrote respondent that it believed respondent had “willfully” infringed upon the NCS patent. Respondent forwarded this letter to appellant but in September 2001, appellant declined to indemnify respondent.
Because of the aggressive defense by NCS of its on-screen scoring patent, the similarity between the technology appellant provided to respondent and the technology protected in the NCS patent, and appellant’s refusal to indemnify, respondent entered into negotiations with NCS to purchase a license. Accordingly, respondent amended its complaint to include a claim that appellant breached the contract by not indemnifying respondent and a claim for breaching the software license warranty. Respondent was eventually able to purchase a license from NCS for $500,000.
Appellant sought partial summary judgment, alleging that respondent’s software-license warranty claim could not be heard in Minnesota district court because that claim was based on patent law and federal courts have exclusive subject matter jurisdiction over patent claims. The district court denied appellant’s motion without elaboration stating, “[v]iewing the evidence in the light most favorable to the non-moving party, there are genuine issues of material fact.” This interlocutory appeal followed.
When addressing the district court’s decision whether or not to grant summary judgment we ask two questions “(1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law.” State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).
A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law. On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.
Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). Subject matter jurisdiction is a question of law which this court reviews de novo. Odenthal v. Minn. Conference of Seventh-Day Adventist, 649 N.W.2d 426, 434 (Minn. 2002).
Appellant claims that because respondent alleges that appellant sold and licensed products that violated the patents held by NCS, this matter cannot be resolved without addressing the validity of the patent, an issue that belongs exclusively in federal court. In addition, appellant goes on to argue that because patent law is a matter reserved for the federal courts, Minnesota’s district courts do not have jurisdiction over this matter.
The United States Constitution grants Congress the power to “promote the progress of science and the useful arts by securing for a limited time” the rights of inventors. U.S. Const. art. I, § 8, cl. 8. Exercising this power, Congress passed the federal patent act. Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470, 1473 (Fed Cir. 1998). Pursuant to the Supremacy Clause, state law claims are preempted if they stand “as an obstacle to the accomplishment and execution” of that act. Id. at 1473. Where a plaintiff’s claim “necessarily depends on the resolution of a substantial question of federal patent law,” federal courts have exclusive jurisdiction. Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809, 108 S. Ct. 2166, 2174 (1988).
But “[n]ot all cases involving a patent law claim fall within the Federal Circuit’s jurisdiction.” Holmes Group Inc., v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, __, 122 S. Ct. 1889, 1895 (2002). Resolutions of contractual disputes are “traditionally” the domain of the state courts. Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262, 99 S. Ct. 1096, 1110 (1979). And a state court claim is not displaced simply because there may be issues that “relate to intellectual property which may or may not be patentable.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 479, 94 S. Ct. 1879, 1885 (1974). The states are free to regulate these subjects in any manner that is consistent with federal law. Id. The critical issue is whether the state-law claim stands as an obstacle to the objectives of Congress. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404 (1941).
Resolution of a state-court contract claim that is not dependent on the determination of the validity of a patent does not thwart the will of the Congress. Intermedics Infusaid, Inc. v. Regents of Univ. of Minn., 804 F.2d 129, 133 (Fed Cir. 1986). Suits brought in state court based on license agreements or breach-of-contract claims do not arise under the federal patent laws. Crew v. Flanagan, 242 Minn. 549, 555, 65 N.W.2d 878, 883 (1954). And absent diversity of citizenship, the federal courts do not have subject matter jurisdiction over these matters. Univ. of Minn. v. Medical Inc., 382 N.W.2d 201, 206 n.1 (Minn. App. 1986) (citing Wilson v. Sandford, 51 U.S. 99 (1850)), review denied (Minn. Apr. 18, 1986).
State courts are allowed to adjudicate patent issues provided the issue does not itself arise under patent law. Exxon, 139 F.3d at 1475. For example, in Crew v. Flangan,the plaintiff asserted its contractual-royalty rights as the patent holder, and Minnesota courts had subject matter jurisdiction. 242 Minn. at 555, 65 N.W2d at 883. Similarly, federal patent law did not preempt a party’s state law unfair-competition claim even though it required the state court to resolve whether a patent had been infringed because the state-law claim contained additional elements not in conflict with the purpose of the patent laws. Exxon, 139 F.3d at 1473.
In its complaint, respondent does not raise a challenge to the patent itself. It merely asserts that appellant breached its license warranty because appellant warranted the technology it provided to respondent did not violate the rights of any third party. Respondent was later threatened with litigation for using the licensed products and subsequently decided to purchase another license from NCS. Determining the validity of the patent is not the central issue to determining respondent’s breach of warranty claim. The critical issue here is whether appellant sold respondent a product that violated the patent rights of another party. It is possible to do this without testing the validity of the patent. It is also possible that the parties will not dispute the validity of the patent at trial. Appellant may merely argue that the technology it licensed does not violate the NCS patent. Even if appellant does challenge the validity of the patent, the issue must arise in the complaint, not the answer, in order for federal subject matter jurisdiction to apply. Holmes, 535 U.S. at, __, 122 S. Ct. at 1893-94.
Appellant urges this court to adopt the reasoning of the federal district court’s ruling in 84 Lumber Co., v. MRK Tech., LTD., 145 F.Supp.2d 675 (W.D. Pa 2001). In 84 Lumber, the federal district court held that a breach of warranty claim involving patent infringement must be resolved in federal court. Id. at 681. But the facts of that case are materially different from the present controversy. In 84 Lumber, a Pennsylvania law required that the validity of the patent be an element of the breach-of-warranty claim. Id. at 678-79. Here there is no such statutory requirement.
The issue of the validity of the NCS patent is not central to this dispute. The record indicates that there maybe no dispute over the validity of the patent. Moreover, as respondent points out, even if the patent was invalid, the NCS allegation that respondent was violating the patent, the NCS mode of aggressive patent enforcement, and the offer of NCS to sell a license to appellant, all suggest that appellant breached its pledge that there was no ongoing litigation against its products. Further, the record does not reflect, nor does appellant provide, any evidence that allowing this claim to go forward in state court would stand as an obstacle to any congressional objective. Because the patent issue is not necessary to respondent’s breach-of-warranty claim, and retaining jurisdiction does not thwart the will of Congress, we affirm the district court’s denial of summary judgment.
Next, appellant asserts that the district court abused its discretion by accepting expert testimony concerning the jurisdictional issue.
[E]videntiary rulings, including a decision to [include] expert testimony, lie within the sound discretion of the trial court. * * * A trial judge is given wide latitude in determining whether there is sufficient foundation upon which an expert may state an opinion. Even if this court would have reached a different conclusion as to the sufficiency of the foundation, the decision of the trial judge will not be reversed absent clear abuse of discretion.
Benson v. N. Gopher Enters., 455 N.W.2d 444, 445-46 (Minn. 1990).
Expert testimony is admissible even if the opinion goes to the ultimate issue. Champeau v. Fruehauf Corp., 814 F.2d 1271, 1278 (8th Cir. 1987). Testimony concerning such issues as fault, however, is generally inadmissible. See May v. Strecker, 453 N.W.2d 549 (Minn. App. 1990) (police officer could not testify whether the defendant’s intoxication was a major factor in an accident). Here the expert, an experienced patent-law attorney, was offering an opinion as to whether, given the facts of the case, it was likely respondent would be sued for patent infringement. The expert did not testify that the patent had been infringed; rather, the expert offered an opinion as to whether NCS was likely to instigate litigation to protect its patent rights, a factor important to the breach of warranty issue. On these facts we cannot say the district court abused its discretion in admitting the expert testimony. See Minn. R. Evid. 702.
Finally, appellant asserts that the district court erred by not identifying the genuine issues of material fact supporting its denial of summary judgment. Although the district court’s brief one-sentence explanation of its decision to deny summary judgment is unorthodox, appellant fails to cite any authority that such brevity represents an error. Assignment of error in a brief not supported by any authority is waived and will not be heard by this court absent obvious prejudicial error. Ganguli v. Univ. of Minn., 512 N.W.2d 918, 919 n.1 (Minn. App. 1997).
Appellant has also requested that if we affirm the district court’s jurisdictional decision, we also identify the issues of material fact and remand the matter to the district court. Here, unlike State v. Rojas, 569 N.W.2d 418, 421 (Minn. App. 1997), where the district court failed to make findings concerning a person’s age and eligibility for adjudication in juvenile court, the district court did resolve the jurisdictional issues by denying appellant’s partial summary judgment motion. Thus, it would be inappropriate for this court to dictate to the district court the issues to be tried.
 The district court eventually dismissed this claim.
Given the interlocutory nature of this appeal, the fact-intensive nature of this dispute, the possibility of additional discovery, and the uncertain nature of the record, it would be inappropriate for this court to render a decision on the merits of the breach-of-license warranty issue and we therefore decline appellant’s invitation to do so.