The U.S. Court of Appeals for the Federal Circuit has held the United States’ invocation of the state-secret privilege does not automatically preclude a trade-secrets misappropriation claim involving some of the same secret work. Crater Corp. v. Lucent Tech., Inc., Case No. 04-1349 (Fed. Cir. Sept. 7, 2005) (Schall, J.) (Newman, J., concurring in part, dissenting in part).
Crater sued Lucent for infringing a patent directed to an underwater coupling device. Crater also asserted state law claims against Lucent for misappropriation of trade secrets and breach of contract. The record established that, at Lucent’s request and under a confidential disclosure agreement, Crater disclosed to Lucent technical data, drawings and other information relating to its coupler. However, no license authorizing Lucent to make the Crater coupler was ever consummated.
In an earlier decision, the Federal Circuit affirmed the district court’s dismissal of Crater’s patent infringement claim (ruling it was a matter for the Court of Federal Claims), but vacated the court’s dismissal of Crater’s state law claims and remanded the case for further consideration. On remand, the United States intervened for the purpose of asserting the Military and State Secrets Privilege against the disclosure of information sought in discovery by Carter. The district court permitted the assertion of the privilege, granting the government a protective order. After reviewing thousands of classified documents in camera, the district court concluded it would be impossible for Crater to engage in discovery or to make out a prima facie case of misappropriation of trade secrets or breach of contract or for Lucent to properly defend itself. Accordingly, it dismissed Carter’s claims. Crater appealed, arguing the district court erred in allowing the government to assert the state secrets privilege and misapplied the privilege in its discovery ruling and in its decision to dismiss the case.
The Court disagreed with Carter that the government’s assertion of the privilege was improper, holding, among other things, that the secretary of the Navy was not required to personally review each and every one of the 26,000 documents at issue in order for the government to properly invoke the state secrets privilege. The Court concluded, however, the district court did err in dismissing Crater’s state law claims. According to the Court, the question of whether any of Crater’s claims can be adjudicated without privileged information turns on an analysis of the claims in light of the state secret that forms the basis for the government’s assertion of the privilege. That analysis, the Court held, had not been sufficiently developed in the district court and, accordingly, the Court did not have a sufficient basis upon which to review the district court decision. The Court remanded the case to determine precisely what, if any, trade secrets exist in connection with Crater’s coupler and whether there was any enforceable contract between Crater and Lucent.
Stay tuned for Crater III.
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