Petition for Writ of Certiorari — Crater Corp. v. Lucent Technologies, Inc. (No. 05-1135)
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TABLE OF APPENDICES
Appendix A — Opinion Of The United States Court
Of Appeals For The Federal Circuit Decided
September 7, 2005
Appendix B — Memorandum And Order Of The
United States District Court For The Eastern
District Of Missouri, Eastern Division Dated
February 19, 2004
Appendix C — Opinion Of The United States Court
Of Appeals For The Federal Circuit Dated June 6,
Appendix D — Memorandum And Order Of The
United States District Court For The Eastern
District Of Missouri, Eastern Division Dated And
Filed August 25, 1999
Appendix E — Order Of The United States District
Court For The Eastern District Of Missouri,
Eastern Division Dated And Filed March 24,
Appendix F — Order Of The United States District
Court For The Eastern District Of Missouri,
Eastern Division Dated And Filed September 17,
xi
Appendices
Page
Appendix G — Order Of The United States Court
Of Appeals For The Federal Circuit Denying
Petition For Rehearing Dated And Filed December
Gee esa ce ie cee a ee kie Cone kbs ees 67a
Appendix H — Declaration And Assertion Of
Military And State Secrets Privilege Of Richard
J. Danzig, Secretary Of The Navy, Undated ..... 69a
1
OPINIONS BELOW
Several opinions and orders below culminated in the Federal
Circuit’s ruling that is the subject of the petition writ of certiorari.
In chronological order, they are as follows:
On August 25, 1999, the district court dismissed all of
Crater’s claims. That order (App. D) is found at No.
4:98CVO09I3ZERW, 1999 WL 33973795 (E.D. Mo. Aug.
25, 1999).
On June 6, 2001, the Federal Circuit affirmed in part,
vacated in part, and remanded. The opinion (App. C) is
reported at 255 F.3d 1361.
On February 19, 2004, the district court denied Crater’s
Motion to Dissolve the Second Protective Order and
dismissed Crater’s claims. The district court’s memorandum
and order (App. B) is found at No. 4:98CV00913ERW,
2004 WL 3609347 (E.D. Mo. Feb. 19, 2004).
On September 7, 2005, a divided panel of the Federal Circuit
issued an opinion (App. A at la-20a), reported at 423 F.3d
1260, reversing and remanding. Judge Newman concurred
in part and dissented in part. (/d. at 2la-25a.) In an
unreported order filed December 6, 2005 (App. G), the court
of appeals also denied Crater’s petition for rehearing
en banc.
2
JURISDICTION
The judgment of the court of appeals was entered
September 7, 2005. (App. A.) The order of the court of
appeals denying the petition for rehearing en banc was filed
December 6, 2005. (App. G.) This Court has jurisdiction
under 28 U.S.C. § 1254(1).
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
The United States Constitution, Amendment VII,
provides:
In Suits at common law, where the value in
controversy shall exceed twenty dollars, the right
of trial by jury shall be preserved, and no fact tried
by a jury shall be otherwise re-examined in any
Court of the United States, than according to the
rules of the common law,
STATEMENT OF THE CASE
Petitioner Crater Corporation (Crater) owns a patent
issued by the United States Patent and Trademark Office,
Patent Number 5,286,129 (Patent), which covers a split-
valve, underwater coupling device (the Coupler) Crater’s
owners invented. Respondent AT&T Company (AT&T)
contacted Crater to request help developing an underwater
fiber optic wetmate, i.e., a connecting device, for sale to an
undisclosed customer. Crater agreed to help AT&T and, later,
Respondent Lucent Technologies, Inc. (Lucent), but insisted
they promise that (1) any information on the Coupler not be
disclosed to anyone outside of AT&T and Lucent, (2) they
3
would provide Crater with copies of any CAD/CAM
drawings of the wetmate and with copies of models of the
wetmate, (3) they would not sell any wetmate incorporating
the Coupler without permission or license from Crater, and
(4) any work on the wetmate or Coupler would be done at
AT&T’s and Lucent’s machine shop. Crater provided
confidential data and trade secret information to AT&T and
Lucent on the Coupler; such information was used in the
wetmate Lucent developed. When Crater complained to
Lucent about breaches of promises, Lucent indicated to Crater
that the work had been for the government and that Crater
had no remedy against Lucent.
In May 1998, Crater filed a complaint in the United States
District Court for the Eastern District of Missouri, alleging
that Lucent and AT&T infringed Crater’s Patent, breached
contracts with Crater, and misappropriated Crater’s trade
secrets, by, inter alia, making, using and selling Couplers
without a license or permission from Crater.
On September 17, 1998, the district court granted a
protective order (First Protective Order) which limited all
parties’ discovery to jurisdictional issues raised in a motion
to dismiss filed by Lucent and AT&T and in Crater’s
opposition thereto. The court permitted the parties to proceed
with discovery on issues of whether Lucent and AT&T made,
used, or sold the Coupler to or for anyone other than the
government and whether the government gave authorization
or consented to Lucent and AT&T’s manufacture or use of
the Coupler. (App. F.)
1. In September 1998, Crater filed a First Amended Complaint,
which made only minor changes to the original pleading. The First
Amended Complaint invoked the district court’s subject matter
jurisdiction pursuant to 28 U.S.C. §§ 1338(a), (b), 1367(a).
4
On March 11, 1999, the United States (a respondent
herein) moved to intervene to assert the Military and State
Secrets Privilege (the Privilege) and moved for a protective
order prohibiting Crater “from conducting any discovery or
serving any subpoena for information relating to the
manufacture or use of plaintiff's coupling device, or any
coupling device, by or on behalf of the United States.” The
latter motion was accompanied by the Declaration and
Assertion of Military and State Secrets Privilege of Richard
J. Danzig, Secretary of the Navy. (App. H.) After declaring
that he had been informed of Crater’s discovery requests and
advised that defendants and possibly others possessed
information responsive to Crater’s discovery requests, Danzig
contended that Crater’s discovery could be expected to cause
grave damage to national security. He also mentioned an in
camera declaration describing the operations and programs
involved. Significantly, he did not state that he had personally
reviewed items requested by Crater, nor did he state that he
had attempted to segregate information that was non-secret,
and therefore available to Crater, from that which was truly
secret. In fact, he had made no such review.
In addition, Lucent and the government had previously
informed Crater that the Coupler was not part of the classified
government program mentioned in Danzig’s declaration. In
an April 24, 1997 letter to Crater, the Department of Navy
(Navy) wrote that “it will be several months before it can be
determined if the Government is going to use a coupling
design that maybe [sic] covered by one or more claims of
your asserted patent.” In a July 30, 1997 letter, the Navy
stated that the government’s only use of the Coupler was
“experimental,” “the solution using [Crater’s] asserted patent
has problematic features,” and “[t]hese problematic features,
5
and the apparent cost associated with correcting the deficiencies
..., counsel against use of the solution incorporating the
asserted patent.” In a December 23, 1997 letter to Crater, Lucent
wrote that “Lucent was not awarded a production contract for
an underwater connector based on the prototype as built by
Lucent under the classified contract.” Finally, in a January 26,
1998 letter to Crater, the Navy confirmed that it had no further
interest in using Crater’s invention.
Our investigation has determined, and I can
certify, that there has been a use by Lucent
Technologies Inc. for the Government of a total of
36 brassboard/prototype engineering development
units coupling devices of the type which you have
alleged are covered by U.S. patent number
5,286,129. These units were tested and evaluated,
and failed to meet fully the Government’s
requirements. Therefore, the Government is not
going to use these devices further.
In March 1999, the district court held a hearing on the
government's motions to intervene and for protective order. The
unopposed motion to intervene was granted. As to the protective-
order motion, however, Crater objected that the government
did not properly invoke the Privilege, in part because the agency
head did not submit an affidavit stating “that he had seen and
considered the documents he considered secret.” In response,
the government’s counsel confirmed the accuracy of Crater’s
objection by stating:
Now, we, the government, do not know what
documents the defendants necessarily have in their
possession or what information or the breadth of the
information the plaintiffs want from these
defendants.
6
Notwithstanding Danzig’s deficient affidavit, on March
24, 1999, the district court granted the government’s motion
for a protective order. The court’s order (Second Protective
Order) prohibited Crater—but no other party—from
“conducting any discovery or serving any subpoena for
information relating to the manufacture or use of plaintiff's
coupling device, or any coupling device, by or on behalf of
the United States.”? (App. E.) The Second Protective Order
prohibited discovery as to a whole category of information,
regardless whether (1) any particular item had been reviewed
by the government, as required, (2) revealing that item would
threaten national security, or (3) the item had until then been
kept secret.’ After entry of the Second Protective Order,
Crater took truncated depositions. The order, however,
prevented Crater from conducting meaningful discovery.
During a July 30, 1999 deposition, Kenneth Nagengast,
who had worked for Lucent and AT&T, testified about the
non-classified, non-secret Coupler and wetmate of which the
Coupler was a part. He admitted that in 1996 or 1997 he
gave two presentations about the wetmate to Lucent
employees; the first presentation had an audience of about a
dozen persons and the second had an even larger audience.
He testified that the Coupler and wetmate were never
classified and that he was allowed to talk about and show
them to the public. Nagengast testified under oath as follows:
2. The Second Protective Order, originally filed under seal, was
subsequently unsealed.
3. Crater provided discovery to Lucent and AT&T, including
numerous design documents concerning the Coupler and the wetmate
Lucent and AT&T had manufactured and sold.
7
Q. Do you know the security clearances of all the
people at these two presentations?
A. No.
Q. Do you know if there were people at those
presentations who had no clearance at all?
A. No.
Q. You don’t know the answer?
A. I do not know the answer.
Q. And yet at this presentation you presented a
demonstrated, a demonstrative model of the
device you were working on for the government?
A. Yes.
Rae eee
Q. Are you required to report breaches of
security?
A. Yes, I am.
Q. Have you reported the presencations to senior
management as breaches of security?
MR. TYLER [the government’s counsel]: Objection.
Assumes there was a breach of security.
Q. Go ahead. Have you reported it?
THE WITNESS: Should I answer him?
MR. BONACORSI: Yes. The objection stands. I
join in the objection. Go ahead and answer if you
can.
A. I have not reported it as a breach of security.
8
Q. Do you believe it was a breach of security?
A. No, I do not.
Q. Why not?
MR. BONACORSI: Calling for opinion,
conjecture, speculation. Go ahead and answer.
A. Well, let’s see —
MR. TYLER: Do you nee. ‘o speak about this
before you respond?
THE WITNESS: I just want to know how much.
MR. BONACORSI: Just before you do that, let
me ask you one thing before you talk. I am not
permitted to join in that conversation.
(Discussion off the record.)
A. Okay, read back the question.
(Pending question was read.)
A. I don’t believe it was a breach of security
because that part of the assembly is not considered
a breach of security to show that—
Q. Okay.
A. —outside of cleared personnel, which is why
our machine shop was making that for us.
Additionally, I was given permission from our
government customer to present this at this
presentation.
Q. What part of the device is not classified?
A. What part is not classified?
Q. You just told me that the part you presented at
this presentation is not classified?
~
9
A. Correct. The split ball is a part of what we
call the connector, that connector itself is not
considered classified.
Q. But the split ball is?
A. No
Q. I see. The connector is not classified and the
split ball is part of the connector?
A. Right.
Nagengast even used a “see-through” wetmate in the
presentations, and in deposition described the wetmate’s
design:
Q. The wet mate you used in your presentations
to senior Lucent management, did it have at least
partially an outer layer made of clear Lucite?
A. Yes.
Q. And that’s so you can see inside of it?
A. Yes.
Q. Did it have rotating black and white ball
segments in it?
A. I don’t recall the colors.
Q. Did it have contrasting colors so you can see,
it would make a better visual presentation?
A. It’s possible. I don’t recall.
. Did it have actuation linkages?
. It had, yes.
. Did it have bladders in silicone oil?
A. No.
Q. Did it have a spring-loaded MAC II multi fiber
electro optical connector?
A. Yes.
Q. Did that pass through the port of one segment
and mate with the split ball coupling device?
A. Yes.
Lucent employee Paul Rominski was also deposed on
July 30, 1999. Nearly a year before his deposition, Rominski
had indicated to the court by affidavit that around 1995 Crater
had submitted to Lucent “prototype designs for their version
of a quick disconnect coupler (the “Crater coupler’).” At the
deposition, Rominski identified drawings of the Coupler he
had sent to and received from Crater and identified other
employees involved in designing and making the Coupler.
On August 25, 1999, the district court dismissed Crater’ s
claims for patent infringement, breach of contract, and
misappropriation of trade secrets. (App. D.)
On June 6, 2001, the Federal Circuit affirmed as to the
patent infringement claim, but reversed and remanded the
dismissal of latter two claims. (App. C.)
On October 1, 2002, based in part upon the
uncontradicted testimony that the Coupler and wetmate had
never been classified and the public programs on the Coupler
and wetmate, featuring the “see-though” wetmate, Crater
moved to dissolve the Second Protective Order. Crater argued
that “large amounts of information, purportedly subject to
the Second Protective Order, have been made public with
1]
the consent of the government,” and that “[a]ny State Secret
Privilege protective order must be mutual.” The government
responded that the public presentations concerning the
Coupler and wetmate, and the testimony describing the design
and components of the Coupler and wetmate, did not reveal
secret or privileged information.
On March 23, 2003, following Crater’s renewed
discovery, Acting Secretary of the Navy Hansford T. Johnson
submitted a Declaration and Claim of Military and State
Secrets Privilege of. But Johnson’s declaration did nothing
to cure the deficiencies in his predecessor’s declaration, i.e.,
Johnson did not claim to have actually looked at the
documents claimed to be privileged. Instead, he averred that
“[glovernment officials have examined the documents
covered by the military and state secrets privilege which may
be responsive to plaintiff's discovery.” He contended that
“none of the documents responsive to plaintiff's discovery,
and no portion of any document,” could be produced without
violating the Privilege.
Despite earlier statements to Crater to the contrary, and
despite stating in court that public presentations featuring
the wetmate had occurred, the government insisted at a
December 2, 2003 motion hearing that all aspects of the
Coupler were secret and that revealing any information about
it would somehow jeopardize national security. The
government even claimed the pleadings and filings in the
public district court file were privileged, because “the line
has to be drawn somewhere.” The government assembled
approximately 26,000 documents or pages of documents,
which the court agreed to review. After reviewing the
12
assemblage, it was apparent to the court “that no one in the
government had even looked at these documents.” The court
added,
It just seemed so clear to me that if a pleading that’s
in the court files and correspondence that has been
produced from plaintiff's file in this case, I just
cannot imagine how, since everything in this case is
under protective order, how that could possibly
damage national security by disclosing it.
The court agreed, however, to delay issuing a ruling.
On December 9, 2003, Lucent and AT&T moved to
dismiss based upon the Privilege. Over Crater’s opposition,
on February 19, 2004, the court granted the motion to dismiss,
denied Crater’s motion to dissolve the Second Protective
order (App. B), and entered judgment accordingly.
On appeal, Crater argued, inter alia that the district court
improperly applied that state secrets privilege, because
(1) the government failed to meet the minimum threshold
requirements for asserting the privilege, and (2) the materials
for which the government sought protection did not constitute
military or state secrets. Crater also argued that the court
erred when it dismissed the action upon the Privilege because
the relevant information about what Lucent and AT&T did
for the government was not secret and had already been
disclosed with the government’s permission. The government
responded that “[t]he Acting Secretary of the Navy was not
required ... to review personally all 26,000 pages of
potentially responsive documents; it sufficed that the Acting
13
Secretary reviewed a representative sample.”* The
government maintained that to invoke the privilege properly,
the department head is not required to have personal
knowledge of the contents of every document at issue.
In a divided panel opinion, the Federal Circuit recognized
that Reynolds requires “actual personal consideration” by the
department head, but the court did not strictly apply Supreme
Court precedent. Instead, the panel majority ruled that the
governmental department heads were not personally required
to review any document at issue as a prerequisite for proper
invocation of the Privilege. The panel majority found it
sufficient that the department heads “were informed of the
nature and scope of the documents sought in discovery,” and
that each then determined that disclosure of the material
sought would jeopardize a state secret and threaten national
security. (App. A at 12a.) But the sole case the Federal Circuit
cited in support of its finding the government has properly
invoked the Privilege, Northrop Corp. v. McDonnell Douglas
Corp., 751 F.2d 395, 400 (D.C. Cir. 1984), held that the
Privilege was properly invoked when the department head
“stated that he had reviewed a representative sample of the
documents as well as affidavits of staff members who had
received all of the documents.” (/d.)
Next, the Federal Circuit addressed the dismissal order,
stating that “existence of a trade secret is a prerequisite to a
claim for misappropriation of trade secrets.” (/d. at 16a.) But
the court found, “it has not been established precisely what,
if any, trade secrets exist in connection with the Coupler.”
(/d.) The court indicated “that deciding the [i]mpact of the
4. The government’s contention that Johnson reviewed a
representative sample of the documents lacks evidentiary support.
14
government’s assertion of the state secrets privilege on
Crater’s State law claims without first determining what trade
secrets exist and whether a contract existed between Crater
and Lucent is akin to putting the cart before the horse.”
(/d. at 17a.) It reversed and remanded for “further
proceedings,” stating that “[i]f Crater establishes that it has
one or more trade secrets in connection with the Coupler,
the district court will know precisely what the secrets are.”
(Id. at 18a.)
REASONS FOR GRANTING THE PETITION
THE FEDERAL CIRCUIT MISAPPLIED THE
MILITARY AND STATE SECRETS PRIVILEGE
BY PERMITTING THE GOVERNMENT TO
ASSERT THE PRIVILEGE WHEN DEPARTMENT
HEAD AFFIANTS DID NOT CLAIM TO HAVE
SEEN AND CONSIDERED A SINGLE DOCUMENT
A. An Important Federal Question was Decided in
Contravention of Longstanding Precedent from
United States v. Reynolds, 345 U.S. 1 (1953)
A common law evidentiary rule—the Privilege—permits
the United States to “block discovery in a lawsuit of any
information that, if disclosed, would adversely affect national
security.” See McDonnell Douglas Corp. v. United States,
323 F.3d 1006, 1021 (Fed. Cir. 2003); Ellsberg v. Mitchell,
709 F.2d 51, 56 (D.C. Cir. 1983). The “information protected
under the state secrets doctrine includes information that
would result in impairment of the nation’s defense
capabilities, disclosure of intelligence-gathering methods or
capabilities, and disruption of diplomatic relations with
foreign governments.” Jn re United States, 872 F.2d 472, 476
15
(D.C. Cir. 1989) (quotations omitted). The Privilege “is well
established in the law of evidence.” United States v. Reynolds,
345 U.S. 1, 7-8 (1953).
The Privilege is as a “drastic remedy that has rarely been
invoked.” See Fitzgerald v. Penthouse Int'l, Ltd., 776 F.2d
1236, 1242 (4th Cir. 1985); accord Halkin v. Helms, 598
F.2d 1, 14n.9 (D.C. Cir. 1978) (“[T]he state secrets privilege
. .. has surfaced only rarely in the United States.”). However,
the government has been invoking the Privilege with
~-increasing frequency. See, e.g., Tenet v. Doe, 544 US. |
(2005); Sterling v. Tenet, 416 F.3d 338 (4th Cir. 2005), cert.
denied, Sterling v. Goss, 126 S. Ct. 1052 (2006); Tenenbaum
v. Simonini, 372 F.3d 776 (6th Cir.), cert. denied, 543 U.S.
1000 (2004); Darby v. United States Dep't of Defense, No.
02-1612574, 74 Fed. Appx. 813 (9th Cir.) (unpublished),
petition for cert. filed, No. 03-8342 (Oct. 27, 2003); Edmonds
v. United States Dep't of Justice, 405 F. Supp. 2d 23 (D.D.C.
2005); Burnett v. Al Baraka Inv. & Dev. Corp., 323 F.Supp.2d
82 (D.D.C. 2004); see generally, J. Steven Gardner,
Comment: The State Secret Privilege Invoked in Civil
Litigation: A Proposal for Statutory Relief, 29 Wake Forest
L. Rev. 567, 567-68, 585-86 (Summer 1994); Note, The
Military and State Secrets Privilege: Protection for the
National Security or Immunity for the Executive?, 91 Yale
L.J. 570 (1982).
While invocation of the Privilege is becoming a common
occurrence, the evidence upon which Reynolds, the leading
case on the Privilege, was based, i.e., affidavits and a sworn
formal claim of privilege, has recently been called into
question. One of the widows and two children of the men
who died in the Air Force plane crash that led to Reynolds
more than half a century ago filed suit upon learning that the
16
evidence upon which the Privilege claim was rooted was
untrue. Their petition for a writ of certiorari is still pending.
See Herring v. United States, 424 F.3d 384 (3d Cir.), petition
for cert. filed, 74 U.S.L.W. 3395 (U.S. Dec. 21, 2005)
(No. 05-821).
As to the issue at hand, in Reynolds, the Supreme Court
outlined three threshold requirements for invoking the
Privilege:
{t]here must be a (1) formal claim of privilege
(2) lodged by the head of the department which
has control over the matter, (3) after actual
personal consideration by that officer.
345 U.S. at 8 (numbers and emphasis added; footnotes
omitted).
The United States Supreme Court clearly defined the
“actual personal consideration” requirement:
[t]he essential matter is that the decision to object
should be taken by the minister who is the political
head of the department, and that he should have seen
and considered the contents of the documents and
himself have formed the view that on grounds of
public interest they ought not to be produced. * * *
Id. at 8 n.20 (quoting Duncan v. Cammell, Laird & Co.,
(1942) A.C. 624, 638 (emphasis added)).
Because of the serious potential for defeating worthy
claims for violations of rights that would otherwise be
proved, the Privilege is “not to be lightly invoked.” Reynolds,
17
345 U.S. at 7. In this case, the Privilege was lightly and
incorrectly invoked. As explained in greater detail the
Statement of the Case, the government provided declarations
from two department heads, Danzig and Johnson, neither of
whom in public declarations claimed to have seen—-much
less given actual personal consideration—to the documents
the government sought to prevent being disclosed. In fact,
the government’s counsel admitted the government did not
know what documents Lucent and AT&T necessarily had in
their possession were or what information or breadth of the
information Crater wanted from them.°
Given that the Privilege can erect an insurmountable
roadblock to meaningful access to the judicial system,
Reynolds—if it is to stand for anything beyond raw executive
power—must require at least a minimal check on such power.
Long ago, the Court recognized that the Privilege doctrine is
a “formula of compromise.” See id. at 9. There will be no
compromise, however, if the Court lets stand the Federal
Circuit’s evisceration of the “actual personal consideration”
requirement.
In addition, the greater implications of allowing the
government to skirt Reynolds’s safeguards are rea! and
substantial. If an unscrupulous agency employee were to
mislead the department head as to the nature of the documents
5. Although Crater has not been made privy to Danzig’s secret
affidavit, the panel majority and minority opinions clearly suggest
the affidavit did not indicate Danzig had personally reviewed any
documents sought to be shielded by the state secrets privilege.
Moreover, the government did not specifically contend that the secret
affidavit was based on actual personal review of any documents. In
oral argument, the government conceded the agency heads had never
reviewed any document.
18
sought to be shielded by the Privilege, and the department
head were permitted simply to submit an affidavit relying
on the subordinate’s summary of the documents, the purpose
behind requiring a formal claim of privilege lodged by the
head of the department with control over the matter would
be subverted. Cf. Marriott Int'l Resorts, L.P. v. United States,
No. 05-5046, 2006 WL 258458, *4 (Fed. Cir. Feb. 3, 2006)
(“Of most importance” why agency head may delegate
authority to invoke deliberative process privilege on agency’s
behalf is that “the state secrets privilege is an absolute
privilege; the deliberative process privilege is not.”). The
affidavit, even if offered innocently, would be predicated
upon a lie. The department head, not having seen and
considered the actual documents, could escape accountability.
Thus, the Supreme Court’s threshold requirements that there
be a “formal claim of privilege, lodged by the head of the
department which has control over the matter” would be
rendered meaningless.
In the instant case, the two public affidavits indicate—
and the government has conceded at oral argument—that the
agency heads never reviewed a single document claimed
secret.
19
B. To the Extent a Question Exists as to the Meaning of
‘Actual Personal Consideration” under Reynolds, the
Court Should Settle this Important Question of
Federal Law, Because the Federal Circuit Created a
Rift with Other Circuits
1. District of Columbia Circuit Court of Appeals
Although Reynolds states that the political head of the
department “should have seen ... the documents,” to the
extent any doubt exists, the Court should settle this important
question of federal law over which the circuits are in conflict.
Specifically, the District of Columbia Circuit concluded that
the Privilege was properly invoked when the department head
averred “that he had reviewed a representative sample of the
documents as well as affidavits of staff members who had
received all of the documents.” See Northrop Corp., 751 F.2d
at 400. The District of Columbia Circuit’s conclusion
overlooked the Supreme Court’s “seen and considered the
contents” requirement.
In any event, Northrop did not stretch the Supreme
Court’s “actual personal consideration” requirement nearly
as thin as did the Federal Circuit’s panel majority, which
was Satisfied that the department heads were “informed of
the nature and scope of the documents.” Thus, Northrop-the
sole case upon which the Federal Circuit based determination
of the consideration issue—does not stand for the proposition
for which the Federal Circuit cited it.
6. The Fourth Circuit's stance on the issue is difficult to discern,
because the affidavit language it has addressed was more specific
- than those at issue in this case. See, e.g., Bowles v. United States,
950 F.2d 154, 156 (4th Cir. 1991) (per curiam)
(Cont'd)
20
2. Third Circuit Court of Appeals
The Third Circuit does not appear to have addressed
Reynolds in the context of a state secrets case. Given its
application of the test in United States v. O'Neill, 619 F.2d
222 (3d Cir. 1980), however, that court would be hard pressed
to find that department heads need not personally review the
documents at issue. O’Neill concerned invocation of the
executive privilege, but the court correctly noted that
Reynolds’s “prerequisites for formal invocation of the
privilege have been uniformly applied irrespective of the
particular kind of executive claim advanced.” /d. at 226
(quoting Carter v. Carlson, 56 F.R.D. 9, 10 (D.D.C. 1972)).
After citing with approval Smith v. FTC, 403 F. Supp. 1000,
1010 (D. Del. 1975), which stated that the agency head
claiming the privilege “must personally review the material,”
the Third Circuit ruled against the government, finding “no
indication ... that the department heads made the type of
personal careful examination which must precede invocation
of the privilege.” O’Neill, 619 F.2d at 226.
3. Eighth Circuit Court of Appeals
Characterizing the invocation of the Privilege as
“a process safeguarded by the Supreme Court’s requirement
that the head of the relevant government department make
(Cont'd)
The Secretary of State . . . properly invoked the privilege
by stating that he was ‘asserting a formal claim of
privilege . . . based upon information conveyed to [him]
by United States Government advisers in the course of
their official duties and upon [his] own personal
determination that the nature of the information in
question require|d] an assertion of privilege.’.
21
a formal claim after personal perusal of the matter,”
Black v. United States, 62 F.3d 1115, 1119 (8th Cir. 1995)
(emphasis added; citing Reynolds, 345 U.S. at 7-8), cert.
denied, 517 U.S. 1154 (1996), the Eighth Circuit’s careful
word selection reveals that court’s interpretation of Reynolds.
The word “peruse” is commonly defined as meaning,
“[t]o read, esp. with great attention.” See Webster’s II New
Riverside University Dictionary 523 (1984).
4. Ninth Circuit Court of Appeals
In Kerr v. United States District Court for Northern
District of California, 511 F.2d 192 (9th Cir. 1975), affirmed,
426 U.S. 394 (1976), the Ninth Circuit addressed the third
prong of the Reynolds test in a state secrets case, leaving no
doubt that the department head must conduct a personal
review of the material at issue. Kerr stemmed from a
discovery dispute in a civil rights action brought by seven
California state prisoners against the members of the
California Adult Authority, state administrative officers, their
agents, employees and successors in interest. Jd. at 194-95.
The defendants, i.e, petitioners, instituted a mandamus or
prohibition proceeding pursuant to the All Writs Act,
28 U.S.C. § 1651. See id. at 194. They contended that the
Privilege shielded them from having to produce requested
personnel files. See id. at 196, 198.
The Ninth Circuit concluded that it did “not have to reach
the question of whether this privilege extends to these
documents,” as that the “governmental privilege must be
formally asserted and delineated in order to be raised
properly.” /d. at 198. After noting that no agency official
had asserted any privilege in the district court, the Ninth
Circuit quoted the Supreme Court’s “seen and considered
22
the contents of the documents” requirement and declared
Reynolds “illustrative.” Id. Finally, the court denied the
petition. Jd. at 199.
Although the Supreme Court affirmed the Ninth Circuit’s
orders, see Kerr, 426 U.S. at 406, the Court narrowly focused
on the issues presented and did not address the level of
specificity required by Reynolds. Instead, the Court simply
summarized the decision below: “the Court of Appeals
indicated that because the assertions of privilege were not
personally made by high-level officials of the California
Adult Authority and because the assertions of privilege were
lacking in what it saw to be the requisite specificity, issuance
of the writ on grounds of privilege was inappropriate.” /d. at
399.
In the instant action—as opposed to Kerr—the level of
specificity required by Reynolds is paramount.
5. Federal District Courts
Not only does the Federal Circuit’s contrary
interpretation of Reynolds conflict with federal appellate
court decisions, it also conflicts with district court opinions.
For example, in Kinoy v. Mitchell, 67 F.R.D. 1 (S.D.N-Y.
1975), the government submitted two affidavits in support
of its state secrets claim. /d. at 5-6. Upon thorough review
of the affidavits, the district court concluded, “[iJt does not
appear ... that the Attorney General personally considered
the material as to which he lodged this claim of privilege
and decided that it was a military or state secret.” Jd. at 7-9
(emphasis added). After quoting the seen-and-considered-
the-contents requirement from Reynolds, the district court
explained: :
23
[t]his is not, in the Court’s view, a mere technical
requirement. Because the Court must rely so
heavily upon the judgment of the responsible
executive Officer in a case such as this, it must be
clear that the judgment was properly exercised.
At a minimum there must be an explicit
representation to this effect.
Id. at 9. The court would not recognize the government’s
claim “until assertion of that claim is made by the Attorney
General upon personal consideration.” /d. at 10. Moreover,
the court deemed a second affidavit “similarly defective as a
formal claim of privilege because it contain[ed] no indication
that the Attorney General personally considered the material.
Id.
The District Court for the Middle District of
Pennsylvania made its interpretation of Reynolds abundantly
clear.
In order to ensure that the executive official
invoking the state secrets privilege has adequate
knowledge of relevant facts, courts have held that
to trigger review of such claims the person
asserting the privilege must, at a minimum, make
an explicit representation that he or she has
personally seen and considered the material.
Yang v. Reno, 157 FR.D. 625, 632 (M.D. Pa. 1997) (emphasis
added; citing cases, including Northrop Corp., 751 F.2d at
405).
24
C. Conflict with a State Supreme Court Decision
In the first Vermont case to recognize the
“investigatory files privilege,” Douglas v. Windham Superior
Court, 157 Vt. 34, 49 (Vt. 1991), the Vermont Supreme Court
applied Reynolds and adopted the Third Circuit’s view as to
the requisite consideration by the agency head. Noting that
“(t]he purpose of the requirement [that the agency head must
invoke the privilege], in part, is to ensure that the agency
head has considered the documents involved and developed
‘precise and certain reasons for preserving’ the confidentiality
of the communications,” the court held that the requisite
declaration or affidavit “must be based on personal review
of the documents by an official in the police agency.”
Douglas, 157 Vt. at 41, 44 (quoting O'Neill, 619 F.2d at 226
(internal quotations omitted from first quotation)).
Il. THE MILITARY AND STATE SECRETS
PRIVILEGE WAS INAPPLICABLE BECAUSE THE
MATERIALS FOR WHICH THE GOVERNMENT
SOUGHT PROTECTION DID NOT CONSTITUTE
MILITARY OR STATE SECRETS AND HAD
ALREADY BEEN DISCLOSED
To block discovery, the government must show the court
there is a “reasonable danger that compulsion of the evidence
will expose military [or state] matters which, in the interest
of national security, should not be divulged.” Reynolds, 345
U.S. at 10. It must also show that the requested materials are
actually secret. If the government or its agents have
voluntarily revealed those materials, they are, ipso facto, no
longer secret and the Privilege is waived. See National
Lawyers Guild v. Attorney Gen., 96 F.R.D. 390, 402
(S.D.N.Y. 1982) (prior disclosure of the specific information
25
sought to be disclosed waives Privilege); 26 C. Wright, A.
Miller, & E. Cooper, Federal Practice and Procedure § 5665
(“[I]f the matter has been disclosed, it is not a ‘secret’ and
there is no privilege for the government to waive.”).
Moreover, “the determination of its secrecy is made as of
the time of trial, not at some time in the past.” 26 C. Wright,
A. Miller, & E. Cooper, § 5665.
The uncontradicted evidence in this case, derived from
two depositions and numerous documents, demonstrates that
the Second Protective Order improperly shielded from
discovery nonsecret information and documents intentionally
disclosed by the government before and during case
proceedings. For example, Nagengast gave public
presentations about the wetmate and Coupler to large
audiences at Lucent without concern for whether his audience
had security clearances. To aid in the presentations, he even
used a “see-through” wetmate. He also knew that the wetmate
connector and the Coupler portion of it were never classified.
In fact, the government had given him permission to make
the presentations. Nagengast’s testimony makes clear the
perversion of the Privilege the court permitted. Crater seeks
the very information—nonsecret information—about which
Nagengast, without security clearances, received
governmental permission to give public presentations.
Rominski, another Lucent employee, gave detailed
testimony via affidavit and deposition about the Coupler and
the wetmate. At his deposition, Rominski identified drawings
of the Coupler he had sent to and received from Crater and
identified other employees involved in designing and making
the Coupler.
26
Nor would disclosure of information relating to the
Coupler threaten national security, because the government
claimed to have no interest in the Coupler and correspondence
about the Coupler was freely exchanged. Four unclassified
letters exchanged between the parties before this lawsuit was
filed (three of which were authored by the government)
demonstrate that the government’s claim of secrecy was
unfounded. Those letters identified the number of coupling
devices provided to the government and repeatedly stated
that the government was not going to use the Coupler in a
classified program. According to the government and Lucent,
the coupler actually used in the secret naval program was
not the Coupler and was not manufactured by Lucent or
AT&T.
According to the clear law, the nonsecret information
cannot be subject to the Privilege. See Ellsberg, 709 F.2d at
57; 26 C. Wright, A. Miller, & E. Cooper, § 5665. The
Privilege does not apply here because Lucent’s and AT&T’s
information relating to the Coupler was not classified and
had not been kept secret.
27
il. BY REVERSING THE GRANT OF A MOTION TO
DISMISS YET REMANDING FOR “FURTHER
PROCEEDINGS” FOR THE COURT TO
DETERMINE FACTS AND STRENGTH OF
CLAIMS IN WHICH CRATER CORPORATION IS
TO ESTABLISH THAT IT HAS TRADE SECRETS,
THE FEDERAL CIRCUIT VIOLATED CRATER’S
SEVENTH AMENDMENT RIGHT TO HAVE A
JURY MAKE THAT DETERMINATION AND SO
FAR DEPARTED FROM THE USUAL COURSE OF
JUDICIAL PROCEDINGS AS TO CALL FOR AN
EXERCISE OF THIS COURT’S SUPERVISORY
POWER
“*An essential characteristic of (the federal system) is
the manner in which, in civil common-law actions, it
distributes trial functions between judge and jury * * *
(assigning) the decisions of disputed questions of fact to the
jury.’” Magenau v. Aetna Freight Lines, Inc., 360 U.S. 273,
278 (1959) (quoting Byrd v. Blue Ridge Rural Elec. Coop.,
Inc., 356 U.S. 525; 537 (1958)).
After misinterpreting the Court’s threshold test for
invoking the Privilege, the Federal Circuit apparently
eviscerated Crater’s right to a jury trial by ordering sua sponte
a new type of district court proceeding. Cf. Garcia v. Murphy
Pac. Marine Salvaging Co., 476 F.2d 303, 306 (Sth Cir. 1973)
(federal district court cannot predetermine facts for jury). At
the very least, the panel placed yet another unsupportable
obstacle between Crater and its right to jury trial. The panel
Stated:
Although we agree that there is a state secret
here that must be protected, we conclude that
28
further proceedings are required because we do
not believe the record in the case—as it relates to
Crater’s two state law claims—is sufficiently
developed to enable a determination as to the
effect of the government’s assertion of the
privilege on those claims, in terms of Crater’s
ability to assert the claims and Lucent’s ability to
defend against them. If Crater establishes that it
has one or more trade secrets in connection with
the Coupler, the district court will know precisely
what the secrets are.
(App. A at 18a.) Such “proceedings”—which are neither
identified by statute, procedural rules, case law, nor the
Constitution—apparently take away Crater’s well established
right to have a jury determine the existence of a trade secret
in connection with its coupler. See Learning Curve Toys, Inc.
v. PlayWood Toys, Inc., 342 F.3d 714, 723 (7th Cir. 2003)
(“[T]he question of whether certain information constitutes
a trade secret ordinarily is best ‘resolved by a fact finder
after full presentation of evidence from each side.’”); see
also General Universal Sys., Inc. v. Lee, 379 F.3d 131, 150
(Sth Circ. 2004) (trade secret is question of fact); North Ail.
Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999)
(trade secret is question of fact). Moreover, the Federal
Circuit failed to indicate what standards and burden would
govern the additional proceedings.
Further, as Judge Newman recognized, the majority
opinion “devised a remedy impossible of performance.”
(App. A at 23a (Newman, J., concurring in part and dissenting
in part).) To the extent the state secrets claim extends to the
information Crater provided to Lucent in connection with
this project, it is covered by the protective order the Federal
29
Circuit upheld. Crater is apparently to prove its case, to the
court, without discovery, and only after proving its case will
discovery be provided. Thus, Crater is hindered in its ability
to establish its trade secret. Furthermore, no precedent or
Federal Rule of Civil Procedure supports the conducting of
a trial before discovery.
Finally, numerous cases have held that the Privilege
exists and operates independent of the strength of the
plaintiff's case. See, e.g., Kasza v. Browner, 133 F.3d 1159,
1166 (9th Cir.), cert. denied, 525 U.S. 967 (1998); McDonnell
Douglas Corp., 323 F.3d at 1021, Ellsberg, 709 F.2d at 57.
30
CONCLUSION
The judgment of the Federal Circuit should be reversed
for the following reasons:
1. the government did not satisfy the Supreme Court’s
“actual personal consideration” requirement from Reynolds
when the department head affiants did not claim to have seen
and considered a single document;
2. the Privilege does not apply to the discovery of nonsecret
information and documents intentionally disclosed by the
government and with the government’s permission before
and during case proceedings; and
3. the circuit court violated Crater’s constitutional right to a
jury trial when it remanded to the district court for judge
determinations of fact and strength of claims not
countenanced by statute, case law, or the Constitution.
Respectfully submitted,
ROBERT SCHULTZ
Counsel of Record
RONALD J. EISENBERG
SCHULTZ & LitTLe, L.L.P.
640 Cepi Drive, Suite A
Chesterfield, MO 63005
(636) 537-4645
Counsel for Petitioner
APPENDIX
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL
CIRCUIT DECIDED SEPTEMBER 7, 2005
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
No. 04-1349
CRATER CORPORATION,
Plaintiff-Appellant,
Vv.
LUCENT TECHNOLOGIES, INC.
and AT & T COMPANY,
Defendants-Appellees,
and
UNITED STATES,
Defendant-Appellee.
DECIDED: September 7, 2005
Before NEWMAN, SCHALL, and DYK, Circuit Judges.
Opinion for the court filed by Circuit Judge SCHALL.
Opinion concurring in part, dissenting in part filed by Circuit
Judge NEWMAN.
2a
Appendix A
SCHALL, Circuit Judge.
Crater Corporation (“Crater”) sued Lucent Technologies,
Inc. and AT & T Company (collectively, “Lucent”) in the
United States District Court for the Eastern District of
Missouri, alleging that Lucent infringed Crater’s U.S. Patent
No. 5,286,129 (the “ ‘129 patent’’). The ‘129 patent is directed
to an underwater coupling device (the “Crater coupler”).
Crater also asserted state law claims against Lucent for
misappropriation of trade secrets and breach of contract.
In an earlier decision, we affirmed the district court’s
dismissal of Crater’s patent infringement claim. See Crater
Corp. v. Lucent Techs., Inc., No. 4:98CV00913 (E.D.Mo.
Aug. 25, 1999) (order dismissing Crater’s claims) (“ Crater
I”); Crater Corp. v. Lucent Techs., Inc., 255 F.3d 1361
(Fed.Cir.2001) (affirming the dismissal of Crater’s patent
infringement claim) (“Crater IT’). However, we vacated the
court’s dismissal of Crater’s state law claims and remanded
the case for further consideration of those claims. Crater I],
255 F.3d at 1371. On remand, the district court determined
that the government’s proper assertion of the Military and
State Secrets privilege (the “state secrets privilege’) made it
impossible for Crater to engage in discovery or to make out
a prima facie case of misappropriation of trade secrets or
breach of contract. Crater Corp. v. Lucent Techs., Inc.,
No. 4:98CV00913 (E.D.Mo. Feb. 19, 2004) (“Crater IIT’).
At the same time, the court held that the government's
assertion of the privilege made it impossible for Lucent to
defend against Crater’s claims. /d., slip op. at 4-7. The court
therefore dismissed Crater’s remaining claims. Crater now
appeals the district court’s decision.
3a
Appendix A
On appeal, Crater makes essentially two arguments. The
first is that the district court erred in allowing the government
to assert the state secrets privilege. The second is that,
assuming the privilege was properly asserted, the court
nonetheless misapplied the privilege in its discovery ruling
and in its decision to dismiss the case. As far as the first
issue is concerned, we see no error in the court’s decision
sustaining the government’s assertion of the state secrets
privilege. However, for the reasons set forth below, we
conclude that the district court did err in dismissing Crater’s
suit. We therefore reverse the court’s decision and remand
the case for further proceedings consistent with this opinion.
BACKGROUND
The technology involved in this dispute relates to '
underwater connectors for fiber optics. The Crater coupler
can be incorporated into an underwater fiber optic “wetmate.”
Crater describes a wetmate as essentially a device which
connects and disconnects fiber optics beneath the sea.
In its complaint, Crater alleged the following facts,
which, for purposes of this appeal, we accept as true: Lucent
employees contacted the Craier inventors and asked them to
provide technical data, drawings, and other information
relating to the Crater coupler. The information and drawings
are Crater’s confidential trade secrets. Lucent expressly
agreed not to reveal the information to third parties. It further
agreed that Lucent would only use Crater’s confidential
4a
Appendix A
information for further research and that it would not produce
the Crater coupler until a license agreement was finalized.
Lucent also agreed to produce and to provide Crater with
copies of computer-aided design (“CAD”) drawings and solid
models of Crater technology. Lucent violated its agreement
with Crater by producing an infringing coupler, by
disseminating Crater’s confidentiaf information and trade
secrets to third parties, and by failing to provide Crater with
the requested CAD drawings and solid models.
Il.
Crater filed suit against Lucent in the Eastern District of
Missouri in May of 1998. Crater’s first amended complaint
alleged patent infringement and asserted state law claims of
misappropriation of trade secrets and breach of contract.
On March 11, 1999, the government moved to intervene in
the case in order to assert the state secrets privilege.
Specifically, the government sought to prohibit Crater “from
conducting any discovery or serving any subpoena for
information relating to the manufacture or use of [Crater’s]
coupling device, or any coupling device, by or on behalf of
the United States.” The government urged that disclosure of
such information would gravely damage national security.
In“support of its motion, the government submitted two
declarations (one classified, one public) from Richard J.
Danzig, then-Secretary of the Navy. Mr. Danzig’s public
declaration explained:
2. My statements in this Declaration are based on
my personal knowledge, on information provided
Sa
Appendix A
to me in my Official capacity, and on my evaluation
of that information.
6. [P]laintiff’s discovery in this case could be
expected to cause extremely grave damage to
national security. Requiring defendants and the
private subpoena recipients to respond to
plaintiff’s discovery would, directly or indirectly,
provide adversaries of the United States
Government with information concerning the
Operations and programs described in my
classified declaration. Those operations and
programs are currently ongoing. It is therefore my
opinion that disclosure of information concerning
them would permit potential adversaries to adopt
specific measures to defeat or otherwise impair
the effectiveness of those operations and
programs.
7. Based on my personal consideration of the
matter, requiring responses to plaintiff's discovery
. reasonably could be expected to cause
extremely grave damage to the vital national
security interests of the United States.
Accordingly, I formally invoke the military and
state secrets privilege ....
6a
Appendix A
Mr. Danzig also submitted a classified declaration to the
district court for inspection in camera. On March 16, 1999,
the district court granted the government’s motion to
intervene. Subsequently, on March 24, 1999, after reviewing
Secretary Danzig’s classified declaration, the court granted
the government’s request for a protective order. The court
stated:
Having reviewed the documents in the possession
of the Government in camera, the Court concludes
that the United States is entitled to assert the state
secrets privilege in this case. The Court finds that
exposure of the information sought by plaintiff's
discovery requests would cause extremely grave
damage to national security.
Accordingly, the court ordered that Crater was “prohibited
from conducting any discovery or serving any subpoena for
information relating to the manufacture or use of plaintiff's
coupling device, or any coupling device, by or on behalf of
the United States.”
Subsequently, Lucent movea to dismiss Crater’s suit,
citing 28 U.S.C. § 1498(a) (2000).' Lucent argued that any
1. That statute provides, in pertinent part:
Whenever an invention described in and covered by a
patent ... is used or manufactured by or for the United
States without license of the owner thereof ... the
owner's remedy shall be by action against the United
States in the United States Court of Federal Claims for
(Cont'd)
Ta
Appendix A
potentially infringing use of Crater’s device was exclusively
“for the United States,” and that Crater’s proper remedy was
to sue the government in the United States Court of Federal
Claims. Thus, Lucent argued that the district court lacked
jurisdiction over Crater’s patent infringement claim.
In addition, Lucent argued that without federal question
jurisdiction, the district court did not have jurisdiction over
Crater’s state law claims because the parties lacked diversity.
Ruling on Lucent’s motion, the district court determined
that it lacked jurisdiction over all of Crater’s claims.
See Crater I. On appeal, we affirmed the dismissal of Crater’s
patent infringement claims, although for a different reason.
See Crater Il, 255 F.3d at 1363. We held that 28 U.S.C.
§ 1498(a) provides a private party performing contract work
for the government with an affirmative defense against patent
infringement. As such, “dismissal of a lawsuit against a
private party pursuant to § 1498(a) is a dismissal because of
the successful assertion of an affirmative defense rather than
a dismissal because of the district court’s lack of subject
(Cont'd)
the recovery of his reasonable and entire compensation
for such use and manufacture.
For the purposes of this section, the use or manufacture
of an invention described in and covered by a patent ---
by a contractor, a subcontractor, or any person, firm, or
corporation for the Government and with the
authorization or consent of the Government, shall be
construed as use or manufacture for the United States.
8a
Appendix A
matter jurisdiction over the patent infringement claim.”
Id. at 1364. We held that dismissal of Crater’s patent
infringement claim on summary judgment was proper
because Lucent had successfully asserted section 1498(a) as
an affirmative defense. Jd. at 1369.
However, because the district court had original
jurisdiction over Crater’s patent infringement claim, the court
had supplemental jurisdiction to adjudicate Crater’s state law
claims of misappropriation of trade secrets and breach of
contract. We therefore vacated the dismissal of those claims
and remanded the case for the district court to consider, in
its sound discretion, whether to exercise supplemental
jurisdiction over those claims. /d. at 1370. Thus, our decision
in Crater II did not reach the merits of Crater’s state law
claims, nor did it reach the issue of whether the government
had properly invoked the state secrets privilege. See id.
Il.
On remand, the district court chose to exercise
supplemental jurisdiction. See Crater III, slip op. at 3.
In due course, Crater moved for the court to dissolve the
protective order entered on March 24, 1999. In its motion,
Crater contended that the government had consented to
disclosure of some of the information subject to the order.
Id. Specifically, Crater argued that Lucent employees had
testified in depositions that (i) the Crater coupler and the
wetmate of which it was a part did not constitute a classified
government secret; and (1i) the coupler/wetmate had been
shown at internal company meetings to individuals without
security clearances. Lucent responded that, to its knowledge,
9a
Appendix A
none of the incidents to which Crater referred involved the
disclosure of information subject to the state secrets privilege.
At a November 2002 hearing, the district court ordered
Crater to submit discovery requests to Lucent and the
government. After reviewing the approximately 26,000
documents responsive to the requests, the government took
the position that it could not satisfy any of Crater’s discovery
requests without jeopardizing national security. At another
hearing in May of 2003, the district court agreed to conduct
an in camera inspection of the 26,000 documents. Crater
I/I, slip op. at 4. When the court completed its inspection, it
ordered the government to disclose some of the documents
to Crater. The government resisted, arguing that releasing
even a small portion of the documents would harm national
security. Jd. Following a hearing for the government to show
cause why it should not be required to turn over the
‘documents, the court reviewed the classified declarations of
then Acting Secretary of the Navy Johnson and another
government official.
Following its review of the classified material, the district
court rendered its decision dismissing Crater’s complaint.
See Crater Ill. The court reasoned that, although Crater would
not have to prove the particular use of its trade secrets in
order to prevail on its misappropriation of trade secrets claim,
it would have to show that Lucent somehow incorporated its
design information in a classified government device. The
court also determined that “all of Crater’s breach claims
except one require Crater to prove what the defendants did
for the government.” /d., slip op. at 6. With regard to the
remaining claim — Crater’s claim that defendants breached
10a
Appendix A
a promise to give Crater CAD drawings and solid models —
that claim “accuses the defendants of failing to provide
drawings and models of a device that the government has
asserted is a state secret.” Jd. The court also noted that, in
light of the government’s proper invocation of the state
secrets privilege, Lucent would not be able to adequately
defend itself because it would not be able to disclose what it
did or did not do for the government. /d., slip op. at 6-7.
Crater timely appealed the district court’s final decision.
Although Crater’s patent infringement claim has been
dismissed with prejudice, we have jurisdiction over the
pendant state law claims because the district court’s original
jurisdiction was based in part on 28 U.S.C. § 1338(a). See28
U.S.C. § 1295(a)(1); Chamberlain Group, Inc. v. Skylink
Techs., Inc., 381 F.3d 1178, 1190 (Fed.Cir.2004).
DISCUSSION
In challenging the district court’s dismissal of its
complaint, Crater raises two issues, which we address in turn.
Crater argues first that the government did not properly
invoke the state secrets privilege. “The Military and State
Secrets privilege allows the United States to block discovery
in a lawsuit of any information that, if disclosed, would
adversely affect national security.” Crater II, 255 F.3d at
1370. Indeed, “even the most compelling necessity cannot
overcome the claim of privilege if the court is ultimately
Satisfied that military secrets are at stake.” United States v.
Reynolds, 345 U.S. 1, 11, 73 S.Ct. 528, 97 L.Ed. 727 (1953);
lla
Appendix A
see also McDonnell Douglas Corp. v. United States, 323 F.3d
1006 (Fed.Cir.2003); Ellsberg v. Mitchell, 709 F.2d 51,
57 (D.C.Cir. 1983). However, because of the “broad sweep”
of the privilege, Elisberg, 709 F.2d at 57, the Supreme Court
has advised that the privilege “is not to be lightly invoked,”
Reynolds, 345 U.S. at 7, 73 S.Ct. 528. The privilege does
not protect from discovery material that is not strictly
necessary to prevent potential harm to national security.
Ellsberg, 709 F.2d at 57.
For the privilege to be properly asserted, the head of the
pertinent government department must formally invoke the
privilege on behalf of the government. Then, after reviewing
the declarations of government officials and the
circumstances surrounding invocation of the privilege, the
court must determine whether assertion of the privilege is
appropriate. McDonnell Douglas, 323 F.3d at 1022.
Crater contends that “[t]he government failed to meet
the threshold requirements for asserting the privilege because
the government official charged with asserting the privilege
never reviewed the materials sought to be protected or made
any attempt to disentangle the secret from the non-secret.”
(Br. of Appellant at 28.) The government responds that, in
order to properly invoke the privilege, the department head
is not required to have personal knowledge of the contents
of every document at issue. The government urges that the
privilege was properly invoked in this case.’
2. Lucent does not take a position on whether the government
properly invoked the state secrets privilege. Lucent argues, however,
that Crater’s claims must be dismissed unless all of the evidence
regarding Lucent's work for the United States is available, so that
the parties may fully and fairly present their respective cases.
12a
Appendix A
We agree with the government that Secretary Danzig and
Acting Secretary Johnson were not required to personally
review each and every one of the 26,000 documents at issue
in order for the government to properl, invoke the state
secrets privilege. Although Reynolds requires that there be
“actual personal consideration” by the head of the pertinent
government department, 345 U.S. at 8, 73 S.Ct. 528, we think
it sufficient that the Secretary of the Navy and later the Acting
Secretary were informed of the nature and scope of the
documents sought in discovery, and that each then made the
ultimate policy determination, based on his personal
knowledge, that disclosure of the material sought would
jeopardize a legitimate state secret and would pose a threat
to national security. See Northrop Corp. v. McDonnell
Douglas Corp., 751 F.2d 395, 400 (D.C.Cir.1984) (holding
that the state secrets privilege was properly invoked when
the department head “stated that he had reviewed a
representative sample of the documents as well as affidavits
of staff members who had received all of the documents”).
We have reviewed both the public and classified
declarations submitted to the district court in connection with
the government's invocation of the state secrets privilege.
Having done so, we are satisfied that the government claims
a legitimate state secret. We therefore agree with the district
court that in this case “‘there is a reasonable danger that
compulsion of the evidence will expose military matters
which, in the interest of national security, should not be
divulged.” McDonnell Douglas, 323 F.3d at 1021 (quoting
Reynolds, 345 U.S. at 10, 73 S.Ct. 528). Accordingly, we
13a
Appendix A
see no error in the district court’s determination that the
government has properly invoked the state secrets privilege.*
I.
The second issue on appeal is whether, in light of the
government’s proper invocation of the state secrets privilege,
the district court correctly determined that none of Crater’s
claims could proceed without impinging upon the privilege.
The district court dismissed Crater’s complaint after it
determined that in view of the assertion of the privilege,
Crater would not be able to prove its state law claims. The
court reached this determination because it concluded that
the March 24th protective order prevented Crater from
discovering any relevant evidence related to its state law
claims. As far as Lucent was concerned, the court stated:
[T]here is no question that if the case proceeds,
the defendants will be unable to adequately defend
themselves. The defendants may not disprove
Crater’s allegations by stating what work they did
for the government, nor could they show that they
did not benefit from any alleged misappropriation.
In short, the defendants may not be able to disclose
what they did for the government, nor will they
be able to deny what they did not do for the
government, with respect to Crater’s coupler.
Crater III, slip op. at 6.
3. Crater argues that the district court improperly communicated
ex parte with government counsel and that, for this reason, the
government's invocation of the state secrets privilege should be
rejected. We rejected this argument in Crater /I. See 255 F.3d at
1371 n. 4.
l4a
Appendix A
Crater contends that the district court misapplied the state
secrets privilege. Focusing upon the protective order, it argues
that the order improperly shielded from discovery
information and documents that were not secret, as well as
documents that previously had been disclosed. Further, Crater
urges, this error carried over to the court’s dismissal of its
complaint. Crater contends that much of the evidence the
court determined could not be presented either was not secret
in the first place or previously had been disclosed.
The government responds that although the patented
Crater coupler obviously is not a state secret, the disclosure
of information related to the manufacture or use, if any, of
the coupler by or for the United States is a state secret. Lucent
in turn argues that the assertion of the privilege hampers its
ability to introduce adequate evidence to defend itself, for
example, by showing what work it did do for the government.
il.
“Although harsh, the presence of a properly invoked state
secrets privilege requires dismissal of [a] claim that cannot
prevail without the privileged information.” McDonnell
Douglas, 323 F.3d at 1021. Resolution 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. We think that, at this juncture, however,
there is a fundamental obstacle to conducting that analysis.
The obstacle lies, we believe, in the fact that the record as it
15a
Appendix A
pertains to Crater’s state law claims is not adequately
developed. As we see it, the problem boils down to this:
The two claims remaining in Crater’s complaint after
our decision in Crater I] were (i) that Lucent misappropriated
one or more of Crater’s trade secrets; and (ii) that Lucent
breached a contract that it had with Crater. Missouri law
defines misappropriation of a trade secret as:
(a) Acquisition of a trade secret of a person by
another person who knows or has reason to know
that the trade secret was acquired by improper
means; or
(b) Disclosure or use of a trade secret of a person without
express or implied consent by another person who:
a. Used improper means to acquire
knowledge of the trade secret; or
b. Before a material change of position,
knew or had reason to know that it was
a trade secret and that knowledge of it
had been acquired by accident or
mistake; or
c. At the time of disclosure or use, knew
or had reason to know that knowledge
of the trade secret was:
i. Derived from or through a
person who had utilized improper
means to acquire it;
16a
Appendix A
ii. Acquired under circumstances
giving rise to a duty to maintain
its secrecy or limit its use; or
iii. Derived from or through a
person who owed a duty to the
person seeking relief to maintain
its secrecy or limit its use.
Mo Rev. Stat. § 417.453(2). Clearly, existence of a trade
secret is a prerequisite to a claim for misappropriation of
trade secrets. Yet, as far as we can tell, it has not been
established precisely what, if any, trade secrets exist in
connection with the Crater coupler.* Indeed, it does not appear
that Crater has even spelled out what trade secrets it claims
in connection with the coupler. In any event, if the preliminary
requirement of the existence of a trade secret is not met,
Lucent obviously could not be liable for misappropriation
of trade secrets. It would not be necessary to reach the state
secrets issue.
4. Mo. Rev. Stat. § 417.453(4) defines a “trade secret” as:
Information, including but not limited to, technical or
nontechnical data, a formula, pattern, compilation,
program, device, method, technique or process that:
(a) derives economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by other persons who can
obtain economic value from its disclosure or use; and
(b) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy
l7a
Appendix A
Turning to Crater’s breach of contract claim, as far as
we can tell, it has not been determined whether, under
Missouri law, there was a contract between Crater and Lucent
and, if there was a contract, what its terms were. Significantly,
it appears that Lucent disputes the existence of a contract.
(First Amended Complaint, Count | and Answer to First
Amended Complaint J¥ 10-24; Lucent’s Supplemental
Answers and Objections to Crater’s Interrogatories { 12
(“Lucent states it is not aware of any ‘contract’ or ‘agreement’
in the sense of a written document formally entered into
between Lucent and Crater.”)) Obviously if there was no
contract between Crater and Lucent, Lucent could not be
liable for breach of contract. Again, it would not be necessary
to reach the state secrets issue.
In short, we think that deciding the Impact of the
government's assertion of the state secrets privilege on
Crater’s state law claims without first determining what trade
secrets exist and whether a contract existed between Crater
and Lucent is akin to putting the cart before the horse.
If there are no alleged trade secrets and there was no contract,
the issue of the state secrets privilege becomes moot.
Alternatively, if there are trade secrets and/or there was a
contract, an understanding of the precise nature of the trade
secrets and the terms of the contract is essential to the analysis
of whether Crater’s misappropriation of trade secrets and
breach of contract claims may proceed in the face of the
assertion of the privilege. In other words, in order to
adjudicate this case, there must be a determination of (1) the
precise trade secrets that exist in connection with the Crater
coupler; (i1) which of those trade secrets Crater alleges were
misappropriated; (111) whether a contract existed between
18a
Appendix A
Crater and Lucent; (iv) if a contract did exist, its terms;
(v) which of the contract’s terms Crater alleges were
breached; and (vi) what constituted the alleged breach.
In sum, we conclude that the decision of the district court
dismissing Crater’s complaint must be reversed and the case
remanded to the court for further proceedings. Although we
agree that there is a state secret here that must be protected,
we conclude that further proceedings are required because
we do not believe the record in the case-as it relates to
Crater’s two state law claims-is sufficiently developed to
enable a determination as to the effect of the government’s
assertion of the privilege on those claims, in terms of Crater’s
ability to assert the claims and Lucent’s ability to defend
igainst them. If Crater establishes that it has one or more
trade secrets in connection with the Crater coupler, the district
court will Know precisely what the secrets are. The
government can then provide an affidavit or declaration-or
otherwise address-how the precise questions involved, such
as whether a particular trade secret was incorporated in a
government device, would impermissibly implicate the state
secrets privilege. Armed with that knowledge and with the
knowledge of the state secret that must be protected, the court
wiil be able to assess whether any misappropriation of trade
secrets claim can go forward. As far as Crater’s breach of
contract claim is concerned, if the district court determines
that a contract did exist between Crater and Lucent and what
the terms of that contract were, the district court, again armed
with its knowledge of the state secret that must be protected,
will be able to determine which, if any, of Crater’s breach of
contract claims can proceed in the face of the government’s
assertion of the state secrets privilege. In making that
19a
Appendix A
determination, the court may require the government to
supply particularized affidavits or declarations in order to
resolve the discovery issue.
Finally, the question of whether the state secrets privilege
would be implicated by the production of particular
documents is not ripe for resolution, and our discussion
should not be read as resolving that question. We have not
reviewed any of the documents which are sought in discovery
and which the district court reviewed in camera. On remand,
after the district court determines the precise nature of
Crater’s state law claims, it will be for that court then to
determine, in the first instance, which, if any, of the
documents sought in discovery may be produced in the face
of the government’s assertion of the state secrets privilege.
CONCLUSION
We see no error in the district court’s determination that
the government has properly invoked the state secrets
privilege and that a valid state secret exists in this case.
However, for the reasons set forth above, we reverse the
court's dismissal of Crater’s state law claims and remand
the case to the court for further proceedings consistent with
this opinion.
5. Contrary to the dissent’s view, our opinion is not a blanket
ratification of the state secrets claim. We have said that the
government has properly invoked the state secrets privilege and that
there 1s a valid state secret to be protected. We also have said,
however, that further proceedings are necessary in order to determine
the impact of the invocation of the privilege on discovery and on
Crater’s ability to assert its state law claims and Lucent's ability to
defend against those claims
20a
Appendix A
COSTS
Each party shall bear its own costs.
REVERSED and REMANDED.
2la
Appendix A
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
No. 04-1349
CRATER CORPORATION,
Plaintiff-Appellant,
LUCENT TECHNOLOGIES, INC.
and AT & T COMPANY,
Defendants-Appellees,
and
UNITED STATES,
Defendant-Appellee.
NEWMAN, Circuit Judge, concurring in part, dissenting
in part.
I agree that further proceedings are warranted, and to
that extent I concur in the remand. However, this court has
placed obstacles to those proceedings that may be
insurmountable in view of the court’s endorsement, without
review, of the full scope of the claim of state secrecy. Our
order that Crater must identify and establish the secret
information that it provided to Lucent in connection with
22a
Appendix A
the Crater Coupler does not remove this information from
the government’s secrecy order.
The panel majority holds, without the review required
by precedent, that “we see no error in the [district] court’s
decision sustaining the government’s assertion of the state
secrets privilege,” op. at 1262, ante; that “the government
has properly invoked the state secrets privilege and that a
valid state secret exists in this case,” id. at 1269; and that
“we agree that there is a state secret here that must be
protected,” id. at 1268. None of us on this panel has inspected
any of the information for which the claim is made,
nonetheless ratifying the withholding of the 26,000
documents in the government’s file, and ratifying the
prohibitions on Lucent including disclosure of its use of
Crater’s information. It is far from clear that Crater can now
place this information on the public record or otherwise
implement this court’s remand.
Thus there is a serious cloud on Crater’s ability to
describe the “trade secrets” that Crater provided to Lucent
with the Crater Coupler, for the government has asserted that
all information related to the Crater Coupler is a state secret.
Indeed, if it is sensitive technology, that breadth of state
secrecy may well be essential. The district court accepted
the “state secrecy” of the 26,000 documents from the
government’s files, while remarking that they included such
documents as pleadings that are in the public record. This
court has seen only one of the 26,000 documents, which
contains, as the majority opinion reports, only the general
statement that (unidentified) documents were reviewed
(by somebody unnamed) and claiming the state secret
23a
Appendix A
privilege without limitation. There was no compliance with
the requirement that the official invoking the privilege “must
set forth, with enough particularity for the court to make an
informed decision, the nature of the material withheld and
of the threat to the national security should it be revealed.”
Kinoy v. Mitchell, 67 F.R.D. 1, 8 (S.D.N.Y.1975). If the claim
is to be preserved in the breadth with which it is asserted,
our appellate responsibility requires assuring ourselves of
the scope and limits of the claim. Precedent has well clarified
the requirements:
[T}he privilege may not be used to shield any
material not strictly necessary to prevent injury
to national security; and whenever possible,
sensitive information must be disentangled from
nonsensitive information to allow for the release
of the latter.
Ellsberg v. Mitchell, 709 F.2d 51, 57 (D.C.Cir.1983). In
particular, and critical to this case, a valid state secrets claim
need not deprive Crater of necessary relief.
| agree that Crater should have the opportunity to
establish that it had trade secrets and that they were disclosed
by Lucent to the government without authorization. However,
the claim of military/state secrecy appears to extend to the
information that Crater provided to Lucent in connection with
this project, for if that information was indeed used by
Lucent, as Crater asserts and Lucent does not deny, it is
covered by the secrecy order. Thus we appear to have devised
a remedy impossible of performance.
24a
Appendix A
The remedy the panel has fashioned was not suggested
by any party. The district court, having reviewed the
government’s documents, observed that Crater can not make
its case, and Lucent can not make a defense, without violation
of the secrecy order. Although the majority opinion states
that “the question of whether the state secrets privilege would
be implicated by the production of particular documents is
not ripe for resolution and our discussion should not be read
as resolving that question,” op. at 1266, this statement is
contradicted by the majority’s blanket ratification of the state
secret claim, adding confusion to risk.
This case raises important principles of law and
procedure, for military and state secrets indeed warrant
protection from the nation’s enemies. At the same time,
persons who serve the government must have a reasonable
way of resolving disputes. It is neither in the nation’s interest,
nor can it be the nation’s intention, to bar judicial relief when
disputes arise among persons who serve sensitive government
business. The merits of the dispute between Crater and Lucent
are not before us; the only question is whether the dispute
can be adjudicated at all.
The judicial obligation is to enable resolution, with
safeguards appropriate to the subject matter. Although there
may be areas of such sensitivity that no judicial exposure
can be countenanced-such as, perhaps, the formation of the
Manhattan Project-there is no suggestion that the sensitive
information concerning the Crater Coupler can not be
protected by well-established judicial procedures for
preserving the security of sensitive information. Persons who
do business with the government should not readily be barred
25a
Appendix A
from access to judicial remedy, lest the government lose
access to the talents of the private sector, and government
reputation for fairness be diminished.
This case does not raise the constitutional debate about
public trials; this is a commercial dispute, of interest only to
the parties. It seems clear that the court’s requested remand
cannot be implemented without risk of violating the secrecy
order, with possible penalty. This is the third judicial cycle
of this simple dispute. We should remand this case for
in camera proceedings that would protect the information
from public disclosure, and allow this dispute to come to
closure. Trials in camera of issues subject to secrecy restraints
are not new, and such trial would be the appropriate procedure
in this case.
26a
APPENDIX B — MEMORANDUM AND ORDER OF
THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF MISSOURI, EASTERN
DIVISION DATED FEBRUARY 19, 2004
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI,
EASTERN DIVISION
Case No. 4:98CV00913 ERW
CRATER CORPORATION,
Plaintiff,
V.
LUCENT TECHNOLOGIES, INC., and AT&T Company,
Defendants.
MEMORANDUM AND ORDER
WEBBER, J.
Before the Court is Plaintiff's Motion to Dissolve the
Second Protective Order [doc. # 176] and Defendants’ Motion
to Dismiss [doc. # 235].
Several years ago, the defendants developed certain
devices for the federal government on a classified Naval
project, Crater Corporation brought this suit in 1998 alleging
that the defendants infringed on its patent for an underwater
27a
Appendix B
coupling device, and added state law claims for breach of
contract and misappropriation of trade secrets. Essentially,
Crater claimed that the defendants stole Crater’s coupler
design and incorporated it into the devices the defendants
developed for the government. The defendants quickly moved
to dismiss for lack of subject matter jurisdiction, and in the
alternative, to dismiss for failure to state a claim upon which
relief could be granted. Citing 28 U.S.C. § 1498(a), the
defendants argued that they were not liable for patent
infringement because any work they performed with respect
to the Crater coupler was done under a government project
and was authorized by the United States. That statute provides
that a private party cannot be held liable for infringement
for any goods used or manufactured by or for the United
States; a plaintiff's only remedy in this situation is to sue the
United States in the Court of Federal Claims.
Because Crater’s patent claim was not properly before
the Court, the defendants further claimed that the Court
should dismiss Crater’s state-law claims, having no basis to
exercise supplemental jurisdiction over those counts. Shortly
after Lucent fsfed this motion, Crater moved to strike an
affidavit from Paul M. Rominski, a Lucent employee,
submitted in support of Lucent’s motion, which indicated
that Lucent’s work in connection with the allegedly infringing
coupler was done for the government with its authorization.
Crater moved to strike the affidavit, arguing that it was not
based on Mr. Rominski’s personal knowledge of the pertinent
facts. Crater also requested an evidentiary hearing on the
motion to dismiss, more time to respond to that motion, and
leave to conduct disovery on both its motion to strike and
the defendants’ motion to dismiss. The Court allowed
28a
Appendix B
discovery. Shortly after it began, however, the United States
intervened to formally assert the state secrets privilege and
to argue against any discovery by Crater. Shortly thereafter,
the Court granted Lucent’s motion to dismiss on August 25,
1999, concluding that all of the work the defendants
performed on the device at issue was performed for the
government with its consent.
On appeal, the United States Court of Appeals for the
Federal Circuit concluded that dismissal of the federal patent
claim was proper, and affirmed the Court’s underlying
determination that Crater failed to produce any evidence of
work on the coupler outside of the defendants’ czpacity as a
government contractor. The Federal Circuit held, however
that this Court dismissed the patent claim for the wrong
reason. According to the court, 28 U.S.C. § 1498(a) provides
an affirmative defense for private parties accused of patent
infringement, but it is not a jurisdictional provision. The court
found that the defendants were entitled to summary judgment
on that affirmative defense. This Court had concluded,
however, that it could not exercise supplemental jurisdiction
over Crater’s state-law claims because it did not have original
jurisdiction over the federal patent claim. Because the Federal
Circuit concluded that the correct way to dismiss the federal
patent claim was to grant summary judgment to the
defendants based on the statutory affirmative defense, that
Court concluded that this Court did indeed have original
jurisdiction over the federal patent claim. Thus, the Federal
Circuit ruled that this Court had discretion under 28 U.S.C.
§ 1367(c) to retain jurisdiction over Crater’s pendent state
law claims, even though the federal patent claim was
dismissed. Accordingly, the Federal Circuit remanded the
29a
Appendix B
state law claims to this Court to decide if it would exercise
supplemental jurisdiction over them. This Court decided to
hear the state-law claims because the case implicated national
security concerns.
Roughly five months before dismissing the case,
however, this Court entered a protective order sought by the
United States, which stated that Crater could not “conduct
any discovery or serve any subpoena for information relating
to the manufacture or use of plaintiff's coupling device, or
any coupling device, by or on behalf of the United States.”
Crater moved to dissolve this protective order in October
2002, arguing principally that the United States had consented
to public disclosure of some of the information subject to
the order. The Court held a hearing on the motion on
November 22, 2002, and ordered Crater to submit a set of
proposed discovery requests to both defendants and the
United States, which the Court could rule on individually.
Plaintiff then submitted 21 document requests and 15
interrogatories. Over the course of roughly four months, the
United States reviewed approximately 26,000 pages of
documents and concluded that it could not respond to any of
Crater’s requests, claiming that “responsive information
{could not] be wholly or partially disclosed without
jeopardizing the national security interests of the United
States.”
After hearing the parties’ arguments at a hearing in May
2003, and weighing the alternatives, the Court agreed to defer
ruling on the motion to dissolve the March 1999 protective
order, until after it conducted an in camera inspection of the
26,000 documents to properly rule on the United States’
30a
Appendix B
objections. The Court completed its inspection on September
9, 2003, and ordered the government to disclose a substantial
portion of the disputed 26,000 documents to Crater. The
government responded by claiming that national security
concerns prevented it from disclosing any of the documents.
According to the government, even a partial release of the
materials in redacted form could gravely harm the national
security interests of the United States. The Court then ordered
the United States to appear at a hearing and show cause why
the previously identified documents should not be disclosed
to counsel for Crater.
At the hearing, it became clear that the amount of
documents that would be required to be disclosed to Crater
is not the real issue in this case. Although the Court feels
that some of the documents should be disclosed, it is clear
from the Court’s in camera inspection that several documents
are indeed protected by the state secrets privilege. Under the
common law state secrets privilege, the government may
prevent disclosure of information in a lawsuit if the court is
satisfied “from all the circumstances of the case, that there
is a reasonable danger that compulsion of the evidence will
expose military matters, which in the interest of national
security, should not be divulged.” United States v. Reynolds,
345 U.S. 1, 10, 73 S.Ct. 528, 97 L.Ed. 727 (1953). The
privilege is absolute, making the information unavailable to
either party in this litigation, even if the court finds that a
party makes a strong showing of necessity. /d. at 11. No
competing interest can overcome the invocation of the
privilege. After conducting a painstaking review of numerous
documents over the course of four days, the Court has
accorded, as the courts require, the utmost deference to the
31a
Appendix B
Fxecutive’s determination of the impact of disclosure of the
information on military security. See Black v. United States,
62 F.3d 1115, 1119 (8th Cir.1995); Zuckerbraun v. General
Dynamics Corp., 935 F.2d 544, 547 (2d Cir.1991).
This raises the issue, brought forward by the defendants
in this motion, of whether a jury can decide the issues in this
case fairly when a substantial part of the relevant evidence
must remain secret. There is no Eighth Circuit precedent on
the subject, but other courts have recognized that when the
government invokes the state secrets privilege, there are three
circumstances when the case may not continue: (1) if state
sécrets are critical to the resolution of core factual questions
in the case; (2) if the plaintiff's ability to prove its case
necessarily depends on or threatens the disclosure of
privileged information; or (3) where the invocation of the
privilege deprives the defendant of a valid defense. See. e.g.,
D.T.M. Research, LLC v. AT & T Corp., 245 F.3d 327, 334
(4th Cir.2001); Kasza v. Browner, 33 F.3d 1159, 1166 (9th
Cir.1998); In re United States, 872 F.2d 472, 476
(D.C.Cir.1989).
After reviewing the record, the Court finds that it must
dismiss the case for any of these three independent grounds.
Crater alleges that the defendants misappropriated Crater’s
trade secrets and breached contracts with Crater in five ways.
|. Crater claims in its First Amended Complaint that the
defendants breached their contract with Crater by: (1) taking Crater’s
trade secrets and confidential information and disclosing this
information to third parties without the permission of Crater;
(Cont'd)
32a
App. ndix B
The defendants responded that their work, if any, related to
Crater’s coupler device, was performed at the request of the
United States under a government contract. This Court
agreed, and the Federal Circuit affirmed this Court’s
determination of that issue. Because of this, state secrets,
namely the defendants’ government contract, is the heart of
the case. To recover from the defendants under the Missouri
Uniform Trade Secrets Act, Crater must show that the
defendants disclosed or used its trade secret without Crater’s
express or implied consent, and that at the time of the
disclosure or use, knew or had reason to know that knowledge
of the trade secret was acquired under circumstances giving
rise to a duty to maintain its secrecy or limit its use.
Mo.Rev.Stat. § 417.453(2)(b) (defining misappropriation in
relevant part). While Crater need not prove the government's
intended use of the device, there is no way that Crater can
prove misappropriation without showing that the defendants
somehow incorporated Crater’s design information into the
classified government device. Because the protective order
and the government’s proper assertion of the state secrets
privilege prevents Crater from discovering any evidence
relating to this claim, Crater is unable to make out a prima
facie Case of misappropriation of trade secrets. Similarly, all
(Cont'd)
(2) taking and using Crater’s trade secrets and confidential
information and using it to produce, sell, offer to sell devices using
the trade secrets and confidential information provided by Crater;
(3) taking and using information and drawings provided by Crater
to produce, sell, and offer to sell devices; (4) disclosing the
information and drawings provided by Crater to third parties; and
(5) failing to provide Crater with copies of CAD drawings and solid
models of Crater technology as promised.
33a
Appendix B
of Crater’s breach of contract claims except one require
Crater to prove what the defendants did for the government.
The one contract claim that might not require Crater to
prove the defendants’ use is Crater’s claim that the defendants
breached their promise to provide Crater with copies of CAD
drawings and solid models of Crater technology. Essentially,
this claim accuses the defendants of failing to provide
drawings and models of a device that the government has
asserted is a state secret. In the Court’s view, litigating this
claim would unduly threaten the disclosure of privileged
information.
Furthermore, there is no question that if the case
proceeds, the defendants will not be able to adequately defend
themselves. The defendants may not disprove Crater’s
allegations by stating what work they did for the government,
nor could they show that they did not benefit from any alleged
misappropriation. In short, the defendants may not be able
to disclose what they did for the government, nor will they
be able to deny what they did not do for the government,
with respect to Crater’s coupler. The Court agrees with the
defendants that if the case were to proceed in this
circumstance, the jury could not make a fair determination;
thus dismissal is appropriate. See Moliero v. FBI, 749 F.2d
815, 825 (D.C.Cir. 1982).
Finally, the Court rejects Crater’s contention that the
defendants do not have standing to assert the state secrets
privilege in this case. In fact, the defendants have not asserted
the privilege; the government has. In making this motion,
the defendants argue that the consequences of the
34a
Appendix B
government's proper assertion of the state secrets privilege
require dismissal of this case, and the Court agrees. The clear
case law indicates that protecting our nation’s security takes
precedence over Crater’s claims against the defendants.
Therefore,
IT IS HEREBY ORDERED that Plaintiff's Motion to
Dissolve the Second Protective Order [doc. # 176] is
DENIED.
IT IS FURTHER ORDERED that Defendant’s Motion
to Dismiss [doc. # 235] is GRANTED. Plaintiff's claims are
DISMISSED WITH PREJUDICE.
Dated this 19th day of February, 2004.
s/ E. Richard Webber
E. RICHARD WEBBER
UNITED STATES DISTRI CT COURT
35a
APPENDIX C — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL CIRCUIT
DATED JUNE 6, 2001
UNITED STATES COURT OF APPEALS
FEDERAL CIRCUIT
No. 00-1125
CRATER CORPORATION,
Plaintiff-Appellant,
v.
LUCENT TECHNOLOGIES, INC.
and American Telephone and Telegraph Company,
Defendants-Appellees,
and
United States,
Defendant-Appellee.
June 6, 2001
Rehearing Denied Sept. 17, 2001
Before MAYER, Chief Judge, NEWMAN, and SCHALL,
Circuit Judges.
36a
Appendix C
SCHALL, Circuit Judge.
Crater Corporation (“Crater”) sued Lucent Technologies, Inc.
and American Telephone and Telegraph Company
(collectively, “Lucent’) in the United States District Court
for the Eastern District of Missouri alleging that Lucent
infringed Crater’s U.S. Patent No. 5,286,129 (the “ ‘129
patent”). The ‘129 patent is directed to an underwater
coupling device (the “Crater coupler”). Crater also alleged
state-law claims against Lucent for breach of contract and
misappropriation of trade secrets. Lucent moved to dismiss
Crater’s complaint for lack of subject matter jurisdiction
under Fed.R.Civ.P. 12(b)(1) and, in the alternative, for failure
to state a claim upon which relief could be granted under
Fed.R.Civ.P. 12(b)(6). Citing 28 U.S.C. § 1498(a),' Lucent
argued that it was not liable for patent infringement because
any work it performed with respect to the Crater coupler was
done under a government project and was authorized by the
United States. Pursuant to § 1498(a), a private party cannot
be held liable for infringement for any goods “used or
manufactured by or for the United States.” See Va. Panel
Corp. v. MAC Panel Co., 133 F.3d 860, 869, 45 USPQ2d
1225, 1232 (Fed.Cir. 1997). Lucent argued that the state law
claims should be dismissed because there was no diversity
of citizenship between Crater and Lucent, and since the
district court lacked jurisdiction over the patent claims, due
!. All statutory references are to the 1994 version of the United
Staxes Code, as modified by Supplement IV of 1998.
37a
Appendix C
to § 1498(a), it could not exercise supplemental jurisdiction
over the state law claims. In due course, the district court
concluded that Lucent’s allegedly infringing activities were
for the government and dismissed Crater’s complaint for lack
of jurisdiction. Crater Corp. v. Lucent Techs., No. 4:
98CV00913 ERW (E.D.Mo. Aug. 25, 1999) (memorandum
and order) (“Crater IT’). Crater appeals the district court's
ruling.
Although we conclude that the district court erred in
dismissing Crater’s patent infringement claims for lack of
jurisdiction, the dismissal of those claims nevertheless was
proper. The reason is that Lucent established that it was
entitled to summary judgment on its 28 U.S.C. § 1498(a)
affirmative defense against the patent infringement charge.
However, since the district court did have jurisdiction over
Crater’s patent claims, we vacate the court’s dismissal of
Crater’s state claims for lack of supplemental jurisdiction
and remand for further proceedings on those claims.
BACKGROUND
I.
Section 1498(a) provides, in relevant part:
Whenever an invention described in and covered
by a patent of the United States is used or
manufactured by or for the United States without
license of the owner thereof or lawful right to use
or manufacture the same, the owner's remedy shall
38a
Appendix C
be by action against the United States in the United
States Court of Federal Claims for the recovery
of his reasonable and entire compensation for such
use and manufacture... .
For the purposes of this section, the use or
manufacture of an invention described in and
covered by a patent of the United States by a
contractor, a subcontractor, or any person, firm,
or corporation for the Government and with the
authorization or consent of the Government, shall
be construed as use or manufacture for the United
States. ...
28 U.S.C. § 1498(a). In addition to giving the United States
Court of Federal Claims exclusive jurisdiction over patent
infringement suits against the government, § 1498(a) also
provides “an affirmative defense for applicable government
contractors.” Va. Panel Corp., 133 F.3d at 869, 45 USPQ2d
at 1232. If a patented invention is used or manufactured for
the government by a private party, that private party cannot
be held liable for patent infringement. Trojan, Inc. v. Shat-
R-Shield, Inc., 885 F.2d 854, 856, 12 USPQ2d 1132, 1134-
35 (Fed.Cir.1989); W.L. Gore & Assocs., Inc. v. Garlock, Inc.,
842 F.2d 1275, 1282-83, 6 USPQ2d 1277, 1283-84
(Fed.Cir.1988). In Manville Sales Corp. v. Paramount
Systems, Inc., 917 F.2d 544, 16 USPQ2d 1587 (Fed.Cir. 1990),
we noted that pursuant to the United States Supreme Court's
decision in Sperry Gyroscope Co. v. Arma Engineering Co.,
271 U.S. 232, 235-36, 46 S.Ct. 505, 70 L.Ed. 922 (1926),
§ 1498(a)“is to be applied, at least with respect to suits to
which the United States is not a party, as a codification of a
39a
Appendix C
defense and not as a jurisdictional statute.” Manville, 917
F.2d at 554, 16 USPQ2d at 1595. Therefore, dismissal of a
lawsuit against a private party pursuant to § 1498(a) is a
dismissal because of the successful assertion of an affirmative
defense rather than a dismissal because of the district court’s
lack of subject matter jurisdiction over the patent
infringement claim. /d. at 554-55, 16 USPQ2d at 1595-96.
Il.
As noted above, after Crater filed suit, Lucent moved
for dismissal pursuant to Fed.R.Civ.P. 12(b)(1) and (6).
Lucent claimed that, under 28 U.S.C. § 1498(a), Crater could
not properly assert its claims for patent infringement against
Lucent because the accused devices were manufactured by
or for the government with its authorization and consent.
Lucent asserted that Crater’s only remedy was against the
United States in the Court of Federal Claims. Lucent also
claimed that the district court did not have original
jurisdiction over Crater’s state claims because there was no
diversity of citizenship between Crater and Lucent, both
corporations residing in Delaware. It further claimed that,
since the district court lacked jurisdiction over the
infringement claims, the court could not exercise
supplemental jurisdiction over the state law claims.
Accompanying Lucent’s motion was an affidavit from Paul
M. Rominski, a Lucent employee, indicating that Lucent’s
work in connection with the allegedly infringing coupler was
done for the government with its authorization.
40a
Appendix C
On August 27, 1998, shortly after Lucent’s motion was
filed, Crater moved to strike Mr. Rominski’s affidavit. In
support of the motion to strike, Crater asserted that the
affidavit was defective because it was not based upon Mr.
Rominski’s personal knowledge of the pertinent facts. Crater
also requested an evidentiary hearing on Lucent’s motion to
dismiss, additional time to respond to Lucent’s motion, and
leave to conduct discovery in support of its motion to strike
and in opposition to the motion to dismiss. In its papers,
Crater alleged that Lucent had engaged in commercial use
of the allegedly infringing coupler. It also alleged that Lucent
had provided the couplers to private parties and that not all
of Lucent’s work on the coupler was done for the government.
In response to Crater’s request, the district court allowed
discovery.
After discovery began, the United States intervened on
March 12, 1999, to formally assert the state secrets privilege
and to argue against any discovery by Crater regarding the
manufacture or use of the allegedly infringing coupler by or
on behalf of the United States. The state secrets privilege
and the circumstances surrounding its assertion in this case
are discussed infra in Part III of the DISCUSSION section
of this opinion.
After over a year of discovery, Crater filed its opposition
to Lucent’s motion to dismiss on August 9, 1999. Crater
supported its opposition with the deposition of Mr. Rominski.
Lucent replied and supplemented its motion with the affidavit
and deposition of Mr. Rominski, the deposition of Barry
Lack, a former Lucent employee, and the deposition of
Kenneth M. Nagengast, a current Lucent employee. Lucent
4la
Appendix C
also referenced, in its reply, its responses and the
government’s responses to Crater’s interrogatories and the
documents the government produced during discovery.
Thereafter, on August 25, 1999, the district court granted
Lucent’s motion. Crater II, slip op. at 6. The court noted
that Crater had failed to produce any evidence, over several
months of discovery, indicating that Lucent performed any
“work in regards to [Crater’s] patent for any entity or
individual other than the [g]overnment.” /d. at 4. The court
also noted that no evidence had been produced to indicate
that Lucent performed any work on the coupler without the
government’s authorization or consent. /d. The court
determined, based upon this lack of evidence, that “all the
work performed by [Lucent] in this matter with regard to the
[a]Jccused [dJevice was performed for the United States
Government with the authorization or consent of the United
States Government. As a result, the Court of Federal Claims,
not this district court, has the exclusive jurisdiction over this
cause of action.” Jd. at 6. Therefore, the court granted
Lucent’s motion to dismiss and entered judgment against
Crater. /d. at 6-7. The court also concluded that Crater’s
motion to strike Mr. Rominski’s affidavit was irrelevant in
light of the several months of discovery that had occurred
after the affidavit was filed. /d. at 4-5. Consequently, the
court did not rule on the motion. /d. at 4 n. 2. The court
noted, however, that granting the motion to strike would not
lead to a different result as far as Lucent’s motion to dismiss
was concerned. /d. at 4-5.
Crater appealed the dismissal of its complaint to the
United States Court of Appeals for the Eighth Circuit. The
Eighth Circuit transferred the appeal to this court pursuant
42a
Appendix C
to 28 U.S.C. § 1631.7 The Eighth Circuit ruled that Crater’s
claims against Lucerit arose, in whole or in part, under the
federal patent laws, thereby vesting this court with exclusive
appellate jurisdiction under 28 U.S.C. § 1295(a)(1).
DISCUSSION
[.
Federal Rule of Civil Procedure 12(b) provides that if,
as in this case, on a 12(b)(6) motion “to dismiss for failure
of the pleading to state a claim upon which relief can be
granted, matters outside the pleading are presented to and
not excluded by the court, the motion shall be treated as one
for summary judgment and disposed of as provided in Rule
56.” See Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d
1246, 1250, 55 USPQ2d 1001, 1003 (Fed.Cir.2000).
Summary judgment “shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of
law.” Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S.
317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Dammen
v. UniMed Med. Ctr., 236 F.3d 978, 980 (8th Cir.2001). The
burden is initially upon the movant to establish the absence
of any genuine issue of material fact and entitlerment to
judgment as a matter of law. Celctex, 477 U.S. at 323-24,
106 S.Ct. 2548. Once a properly supported motion for
2. Section 1631 provides for transfers of cases that have been
filed in the wrong court in order t» cure the resulting lack of
jurisdiction.
43a
Appendix C
summary judgment is made, the adverse party ‘must set forth
specific facts showing that there is a genuine issue for trial.’
Anderson vy. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct.
2505, 91 L.Ed.2d 202 (1986) (citing Fed.R.Civ.P. 56(e))
(footnotes omitted). We review a grant of summary judgment
without deference. Conroy v. Reebok, Int'l, Ltd., 14 F.3d
1570, 1575, 29 USPQ2d 1373, 1377 (Fed.Cir.1994). In
addition, we must, as the district court was required to do,
draw all reasonable factual inferences in favor of the
nonmovant. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.
i].
Crater argues that Lucent failed to submit any competent
evidence to meet the standard for summary judgment. Crater
asserts that Mr. Rominski’s affidavit, that was submitted with
Lucent’s motion to dismiss, was not based on Mr. Rominski’s
personal knowledge, and thus could not be relied on by the
district court. Crater also argues that the district court
improperly considered evidence that was not submitted by
Lucent until it replied to Crater’s opposition to the motion
to dismiss. Crater further argues that the district court then
failed to give Crater a chance to respond to the evidence.
Finally, Crater argues that it submitted evidence that creates
a genuine issue of material fact as to whether all of Lucent's
couplers were made for the government.
Lucent responds that the Rominski affidavit was based
on personal knowledge. In any event, it urges, apart from
the Rominski affidavit, it brought forward enough evidence
to make it clear that Lucent did not use or make the allegedly
44a
Appendix C
infringing coupler for any commercial, non-government
purpose. Lucent also asserts that the evidence it submitted
with its reply brief did not prejudice Crater because Crater
already was aware of similar evidence that established that
Lucent’s only work on the coupler was for the government
and under the gover. ment’s authorization. Lucent argues that
the unique circumstances of the case, in which discovery was
taken after Lucent’s initial brief in support of its motion to
dismiss, forced Lucent to submit the challenged evidence
with its reply brief.
A. The issue of the Rominski affidavit
Lucent moved for dismissal on August 17, 1998. As indicated
above, it did so based in large part on 28 U.S.C. § 1498(a).
Lucent argued that any work it had done involving the ‘129
patent was performed for the government and with the
government’s authorization and consent. Crater I/, slip op.
at 1-2. To support its claim, Lucent submitted the Rominski
affidavit. After identifying himself as a Lucent employee,
Mr. Rominski asserted that Lucent had performed work as a
subcontractor on a government project involving “the
development of certain prototype equipment, one element
of which was a coupler device of a kind known as a quick
disconnect coupler.” Mr. Rominski further asserted that,
based upon his personal knowledge, he could state that all
of Lucent’s activities involving the coupler “were solely for
the Government in connection with the development project
[he] was working on under the classified development
contract.”
45a
Appendix C
As indicated above, Crater requested, and was granted,
additional time to conduct discovery. The court allowed
Crater to seek discovery on “(1) whether defendants made,
used, or sold the Accused Device (“Accused Device’ meaning
split valve coupling device), te or for anyone other than the
United States of America, and (2) whether the United States
Government gave its authorization or consent to defendants
for their manufacture of the Accused Device.” Crater Corp.
v. Lucent Techs., No. 4: 98CV00913 ERW, slip op. at 2
(E.D.Mo. Sept. 17, 1998) (order) (“ Crater 1/1”). The discovery
that was conducted included about twenty-five requests for
production and interrogatories, to which Lucent responded.
In addition, Lucent provided supplemental responses for at
least seven of Crater’s interrogatories and provided answers
to Crater’s proposed additional discovery requests. Crater
deposed Mr. Rominski, Mr. Lack, and Mr. Nagengast. Crater
also received documents and interrogatory responses from
the United States. When Crater responded to Lucent’s motion
to dismiss on August 9, 1999, it also moved to strike the
Rominski affidavit. Crater argued that the affidavit was
defective because, notwithstanding its language, it was
not based upon Mr. Rominski’s personal knowledge.
See Fed.R.Civ.P. 56(e); McSpadden v. Mullins, 456 F.2d 428,
430 (8th Cir. 1972). Crater contended that certain statements
made by Mr. Rominski when he was deposed undermined
the assertion in his affidavit that he had personal knowledge
with respect to the Lucent coupler project. Appellant Br. at
49-53. Specifically, Crater points to testimony by Mr.
Rominski in his deposition that, although he was an engineer
involved in Lucent’s underwater fiber optic connector project,
he had no responsibilities with respect to the negotiating or
signing of contracts in connection with the “government
46a
Appendix C
program.” As noted above, in ruling in favor of Lucent, the
district court did not rule on the motion to strike the Rominski
affidavit, stating that, in view of the discovery that had taken
place, the issue was moot. The court further stated that
granting the motion to strike would not have changed the
result in the case. Under these circumstances, we have not
considered the Rominski affidavit.
B. Evidence relevant to the § 1498(a) affirmative defense
Disregarding Mr. Rominski’s affidavit, we hold that
Lucent still provided sufficient evidence of record to meet
its burden under the summary judgment standard. All of the
evidence that was produced during discovery indicated that
Lucent’s work on the allegedly infringing coupler was done
for the government. Lucent, in its supplemental answers to
Crater’s interrogatories on March 31, 1999, stated that it had
“not designed, developed, manufactured, sold, or offered for
sale, directly or through another, any [allegedly infringing
coupler] to or for anyone other than the United States of
America.” The response continued, noting that Lucent’s work
on the coupler was part of a classified development project
for the government. Lucent further indicated, on July 16,
1999, in its response to Crater’s proposed additional
discovery, that the chain of custody of all of the couplers it
made was from Lucent to the government, and the
government now owned all of the couplers. The government
also provided evidence to support Lucent’s defense. On July
15, 1999, in response to Crater’s supplemental interrogatories
and requests for production, the government affirmed the
existence of a classified development contract covering work
on the coupler for the government, under which Lucent was
47a
Appendix C
a subcontractor, providing the specific dates the contract
covered. The government also produced redacted copies of
the classified contract between the government and the
primary contractor and the subcontract between the primary
contractor and Lucent. The contract between the government
and the primary contractor indicated that work under the
contract was authorized by the government. This evidence
alone substantiates Lucent's claim that it was a subcontractor
working on the coupler project for the government, thereby
establishing Lucent’s defense under § 1498(a).
The evidence Lucent submitted with its reply brief
further buttressed Lucent’s defense under § 1498(a}. The
deposition testimony of Mr. Nagengast, who was an engineer
at Lucent who worked with the coupler, indicated that all of
the work done on the coupler was for the government. Mr.
Nagengast testified that all of the couplers made were sold
to the government and all work on the coupler project was
billed to a government program account. Mr. Nagengast also
stated that he was never involved in discussions suggesting
that Lucent was engaging in commercial use of the coupler.
Mr. Lack, who worked on the coupler at Lucent, testified in
his deposition that all of the work on the coupler at Lucent
was associated with a classified program for the government.
Finally, in a declaration, Martin I. Finston, in-house counsel
at Lucent, stated that Lucent’s work on the coupler was part
of a classified government project under which Lucent was
a subcontractor. Mr. Finston indicated that the contract under
which Lucent performed its work on the coupler contained a
provision stating that “the government authorizes and
consents to all use and manufacture of any invention
described in and covered by a United States patent in the
performance of the contract.”
48a
Appendix C
Crater is correct that Lucent first presented the Finston
declaration and the Nagengast and Lack deposition testimony
with the reply brief that it filed on August 17, 1999, in support
of its motion to dismiss. However, since discovery was not
granted until after Lucent's initial motion to dismiss, filed
on August 17, 1998, the only chance Lucent had to submit
evidence produced during discovery was with its reply brief.
See E.D. Mo. L.R. 3.02(a) (July 1, 1998) (prohibiting the
filing of discovery and disclosure material except as exhibits
to a motion or memorandum). In addition, the depositions
of Mr. Nagengast and Mr. Lack were taken at the request of
Crater, whose counsel examined the two witnesses. Not only
did Crater have notice of the depositions and their contents,
but Crater filed its opposition to Lucent’s motion to dismiss
on August 9, 1999, after the depositions were taken on July
30, 1999. In the cases Crater cites to support its argument
that the evidence offered by Lucent should be ignored, Black
v. TIC Investment Corp., 900 F.2d 112, 116 (7th Cir.1990),
and Cia. Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754
F.2d 404, 409-10 (Ist Cir.1985), evidence submitted with a
reply brief was rejected because it was new and the opposer
was never given an opportunity to respond to it. Crater had
ample opportunity and notice of the substance of the
declaration and deposition evidence Lucent submitted with
its reply brief, and it was able to adequately address the
evidence in its opposition brief.
Contrary to its argument on appeal, Crater failed to come
forward with any evidence that raised a genuine issue of
material fact so as to defeat summary judgment, even though
it had the opportunity to develop relevant evidence in
discovery. The district court provided Crater with almost a
49a
Appendix C
year to perform discovery as to whether Lucent engaged in
any commercial activity with regard to the allegedly
infringing coupler device. Crater points to Mr. Rominski’s
deposition to prove that Mr. Rominski did not have personal
knowledge of the facts contained in his affidavit. However,
even if Mr. Rominski’s affidavit is insufficient, all of the
other evidence produced during discovery supports Lucent’s
claim that its activities involving the coupler were authorized
by the government. Crater also asserts, based upon the
affidavits of Steven P. Van Keuren, the president of Crater,
that there was a discrepancy between the number of couplers
the government indicates Lucent made for it and the number
of couplers Lucent admits to making. However, there is no
such discrepancy in Lucent’s and the government’s responses,
both of which indicate that all of the couplers made by Lucent
were for the government. We conclude that there is no
genuine issue of material fact that Lucent’s work on the
coupler project was for the government.
For the foregoing reasons, we hold that summary
judgment was properly granted in favor of Lucent on its
affirmative defense under 28 U.S.C. § 1498(a). The district
court did err in dismissing Crater’s complaint for lack of
jurisdiction, however. See Manville, 917 F.2d at 554-55, 16
USPQ2d at 1595-96 (noting that § 1498(a) is not
jurisdictional, but provides an affirmative defense for private
parties charged with patent infringement). Since the district
court’s dismissal of Crater’s patent infringement claim based
upon § 1498(a) could not be a dismissal for lack of
jurisdiction, the district court had original jurisdiction over
the case by reason of Crater’s patent claims. See 28 U.S.C.
§ 1338(a); Leatherman Tool Group Inc. v. Cooper Indus.,
50a
Appendix C
Inc., 131 F.3d 1011, 1013, 44 USPQ2d 1837, 1839-40
(Fed.Cir.1997). Having original jurisdiction based on Crater’s
patent law claims,’ the district court has supplemental
jurisdiction over Crater’s state law claims for breach of
contract and misappropriation of trade secrets because those
claims “form part of the same case or controversy,” 28 U.S.C.
§ 1367(a). Textile Prods., Inc. vy. Mead Corp., 134 F.3d 1481,
1486, 45 USPQ2d 1633, 1637 (Fed.Cir.1998). Even though
Crater’s patent infringement claims were properly dismissed,
the district court still has the discretion to exercise
supplemental jurisdiction over the state law claims. 28 U.S.C.
§ 1367(c); Gaia Techs., Inc. v. Reconversion Techs., Inc., 93
F.3d 774, 781, 39 USPQ2d 1826, 1832, amended in part by
104 F.3d 1296, 1297,41 USPQ2d 1134, 1140 (Fed.Cir. 1996).
We must therefore remand the state law claims for the district
court to determine, in its discretion, whether it will retain
jurisdiction over them.
IIT.
As-noted above, on March 12, 1999, the United States
officially intervened and moved to bar any discovery
regarding the manufacture or use of the coupler by or on
behalf of the United States. The government asserted that
any information to be obtained in such Giscovery was
protected by the state secrets privilege. The state secrets
privilege allows the United States to “block discovery in a
lawsuit to any information that, if disclosed, would adversely
3. Crater does not dispute that both parties are citizens of
Delaware. Therefore, the district court cannot exercise original
jurisdiction over Crater’s state law claims under 28 U.S.C. § 1332(a)
based on diversity of citizenship.
Sla
Appendix C
affect national security.” Ellsberg v. Mitchell, 709 F.2d 51,
56 (D.C.Cir.1983). The privilege is invoked to prevent
“impairment of the nation’s defense capabilities, disclosure
of intelligence-gathering methods or capabilities, and
disruption of diplomatic relations with foreign governments.”
Id. at 57 (footnotes omitted). See also United States v.
Reynolds, 345 U.S. 1, 73 S.Ct. 528, 97 L.Ed. 727 (1953).
The government supported its motion with both an
unclassified and a classified declaration of Richard J. Danzig,
Secretary of the Navy. At the court’s request, on March 23,
1999, the government presented the classified declaration to
the court for in camera inspection outside the presence of
Crater and Lucent. The court granted the government’s
motion, barring any discovery or the service of any subpoena
for information relating to the manufacture or use of Crater’s
patented coupling device, or any coupling device, by or on
behalf of the United States.
On appeal, Crater argues vigorously that the government
failed to meet the threshold requirements for proper assertion
of the state secrets privilege. Crater contencs that Secretary
Danzig failed to review the documents Crater was seeking
in order to determine whether assertion of the privilege truly
was necessary. Crater also contends that the material it sought
in discovery could not be protected under the state secrets
privilege because the government and its agents had
voluntarily revealed the material, thereby vitiating the
privilege. Finally, Crater contends that the district court erred
in not reviewing each document with respect to which the
privilege was being asserted.
52a
Appendix C
We conclude, however, that it is not necessary for us to
address Crater’s arguments concerning the state secrets
privilege. The reason is that we believe that the issue of the
privilege is irrelevant to the question that is before us on
appeal-whether the district court erred in dismissing Crater’s
patent infringement claims against Lucent based upon the
affirmative defense of 28 U.S.C. § 1498(a).
Even before the government intervened in the case and
invoked the privilege, the district court had limited discovery
on Lucent’s motion to dismiss to evidence relevant to the
§ 1498(a) issue-evidence relating to the question of whether
Lucent made, used, or sold the coupler device to or for anyone
other than the government. Crater /, slip op. at 2. The only
information relevant to Crater’s opposition to Lucent’s
motion was information of commercial use of the coupler
by Lucent. The privilege, by definition, only barred discovery
of evidence of non-commercial use of the coupler by Lucent.
The fact the district court allowed the government to assert
the privilege had no bearing on Crater’s ability to discover
evidence that would have created a genuine issue of material
fact as to whether Lucent engaged in commercial activity
regarding the coupler. Therefore, we do not decide whether
the privilege was erroneously invoked because any evidence
that was protected by the privilege was not relevant to
Crater’s opposition to Lucent’s motion.*
4. In a related matter, Crater claims that the district court took
part in what Crater characterizes as three improper ex parte
communications with the government. We have carefully considered
Crater’s claim and sce no impropriety in the court’s communications
with government counsel.
53a
Appendix C
CONCLUSION
We affirm the district court’s dismissal of Crater’s patent
infringement claims because there is no genuine issue of
material fact that Lucent’s use and manufacture of the
allegedly infringing coupler was for the government. Because
Lucent established its affirmative defense under 28 U.S.C.
§ 1498(a), Lucent’s activities cannot be held to be infringing.
However, as explained above, the district court did have
jurisdiction over Crater’s patent claims. Therefore, the district
court erred in dismissing Crater’s complaint for lack of
jurisdiction. We therefore vacate the district court’s disrnissal
of Crater’s complaint and remand the case to the district court ~
so that the court may decide whether, in its discretion, to
exercise jurisdiction over Crater’s state law claims.
AFFIRMED IN PART, VACATED IN PART, and
REMANDED.
S4a
APPENDIX D — MEMORANDUM AND ORDER OF
THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF MISSOURI, EASTERN
DIVISION DATED AND FILED AUGUST 25, 1999
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
Case No. 4:98CV00913 ERW
CRATER CORPORATION,
Plaintiff,
VS.
LUCENT TECHNOLOGIES, INC. and
AMERICAN TELEPHONE AND
TELEGRAPH COMPANY,
Defendant(s).
MEMORANDUM AND ORDER
This matter is before the Court upon defendants’ Motion
to Dismiss [Document #8].
I. SUMMARY OF THE PROCEEDINGS IN THIS
MATTER.
Plaintiff Crater Corporation filed this suit against the
defendants on May 22, 1998. In its complaint, plaintiff alleges
that the defendants infringed on plaintiff's patent and caused
55a
Appendix D
others to infringe on plaintiff's patent and that defendants
took and misappropriated confidential information of
plaintiff concerning plaintiff's patented device without
plaintiff's permission. Plaintiff's claims against defendants
consisted of both state law claims as well as federal claims
under the patent laws of the United States. Plaintiff alleged,
at least at the outset of this case, that this Court had diversity
jurisdiction over plaintiff’s state law claims and federal
jurisdiction over plaintiff’s patent law claims. However,
because it appears from plaintiff's complaint that plaintiff
and defendant Lucent are both incorporated under the laws
of Delaware, making them citizens of the same state, plaintiff
is unable to establish that complete diversity exists in this
matter.
As a result of the lack of diversity jurisdiction in this
matter, this Court would not have jurisdiction over this matter
if the Court does not have jurisdiction over plaintiff's federal
patent infringement claims. On August 17, 1998, the
defendants moved to dismiss this action on the ground that
this Court does not have jurisdiction over plaintiff's patent
infringement claims. In support of their Motion, defendants
contended, with documentary support from the affidavit of
Paul Rominski, that any of their work involving the patent
at issue was performed for the United States Government
and with its authorization and consent. As a result, defendants
argued that the Court of Federal Claims had exclusive
jurisdiction over plaintiff's patent infringement claims
pursuant to 28 U.S.C. 1498(a). Therefore, defendants argued,
this Court lacked any jurisdictional basis to hear plaintiff's
claims.
56a
Appendix D
In response, plaintiff requested, among other things, a
ninety day extension in which to perform discovery on the
facts supporting defendants’ claim that the alleged patent
infringement claims at ‘sue should have been filed in the
Court of Federal claims pursuant to 28 U.S.C. § 1498(a).
Document #12. While plaintiff’s attempts at discovery did
not proceed expediently at the outset, in part because the
defendants represented to the Court that they could not
disclose certain information due to their obligation to keep
certain information confidential under their contract with the
United States Government, plaintiff was granted several
extensions of time in which to conduct discovery and was
allowed to conduct discovery on the issue of defendants’ use
of plaintiffs patent for any entity other than the United States
Government. However, plaintiff's attempt to conduct
discovery was limited following the Court’s finding that the
Government was entitled to assert the state secrets privilege
in this matter. Notwithstanding the Government’s presence
in this action to protect the state secrets threatened by
plaintiff's discovery, plaintiff was allowed to conduct
discovery related to defendants’ use of plaintiff's patent for
purposes other than on behalf of the United States
Government.
Plaintiff filed its response to defendants’ Motion to
Dismiss on August 9, 1999. In its response, plaintiff asserts
that defendants’ Motion to Dismiss shoul. be denied, because
the affidavit of Mr. Rominski, which was attached to
defendants’ Motion to Dismiss, was not based on his personal
knowledge. Defendants filed their reply to plaintiff’s Motion
to Dismiss on August 17, 1999, exactly one year after
defendants’ originally filed their Motion to Dismiss. Having
57a
Appendix D
reviewed the briefs filed by the parties in relation to this
issue, having participated in multiple hearings regarding
plaintiff’s discovery efforts, and having considered the
Government’s claim of entitlement to the state secrets
privilege, the Court concludes that plaintiff's claims should
be dismissed, because this Court lacks jurisdiction over
plaintiff's claims against defendants.
II ANALYSIS.
Pursuant to 28 U.S.C. § 1498(a),' Congress has vested
exclusive jurisdiction in the Court of Federal Claims over
actions for patent infringement against the United States
Government. See generally Croydon Co., Inc. v. Unique
Furnishings, LTD., 831 F. Supp. 480, 482-83 (E.D. N.C.
1993). While the plaintiff in this matter has not directly sued
the United States Government, section 1498 still vests
exclusive jurisdiction in the Court of Federal Claims if the
1. Section 1498(a) provides as follows in relevant part:
“Whenever an invention described in and covered by a patent of the
United States is used or manufactured by or for the United States
without license of the owner thereof or lawful right to use or
manufacture the same, the owner’s remedy shall be by action against
the United States in the United States Court of Federal Claims for
the recovery of his reasonable and entire compensation for such use
and manufacture... .
For the purposes of this section, the use or manufacture of an
invention described in and covered by a patent of the United States
by a contractor, a subcontractor, or any person, firm, or corporation
for the Government and with the authorization or consent of the
Government, shall be construed as use or manufacture for the United
States.”
58a
Appendix D
defendants’ use or manufacture of a device covered by
plaintiff's patent was for the Government and “with the
authorization or consent of the Government,” because under
section 1498, such use “shall be construed as use or
manufacture for the United States.” 28 U.S.C. § 1498(a).
See also Croydon Co., 831 F. Supp. at 482-83.
Notwithstanding plaintiff's repeated attempts over
several months to discover evidence indicating that
defendants’ use of plaintiff's patent was for an individual or
entity other than the Government or was not performed with
the authorization or consent of the Government, no evidence
presented to the Court indicates that defendants performec
work in regards to plaintiff’s patent for any entity or
individual other than the Government. Similarly, no evidence
indicates that defendants performed such work without the
authorization or consent of the Government. For this reason,
the Court finds that defendants’ Motion to Dismiss should
be granted.
In addition, the Court does not believe that plaintiff’s
attempt to strike the affidavit of Mr. Rominski should lead
to a contrary result.* Denying the Motion to Dismiss on such
a technicality would require the Court to turn its back on the
several months of discovery undertaken by the plaintiff in
this case. While the original Motion to Dismiss may have
been based in large part, if not entirely, on the Rominski
affidavit, plaintiff requested additional time to conduct
discovery on the jurisdictional issue, because “the disputed
facts in this case require discovery to determine the truth.”
2. This statement by the Court should not be construed as a
finding that the Court would strike Rominski’s affidavit.
59a
Appendix D
Plaintiff's Brief in Support of Motion for 90 Day Extension
[Document #12] at pg. 8. Plaintiff stated that discovery to
uncover the truth was necessary, because “Defendants’
affidavit is conclusory and not based upon personal
knowledge, and because [plaintiff] has not had any reasonable
opportunity to conduct discovery on the disputed issues. . .”
Id. Now, after conducting discovery in the search for the truth
over a period of several months without uncovering any
evidence supporting its position, plaintiff opposes the Motion
to Dismiss solely on the ground that the Rominski affidavit
was not based on his personal knowledge. However,
plaintiff's argument ignores the fact that its original attack
on the Rominski affidavit was one of the factors leading to
the discovery undertaken in this matter. At least one of the
purposes of such discovery was to ascertain if any real facts
supported the defendants’ Motion as corroborated by the
Rominski affidavit. As a result, plaintiff needed to come
forward with specific facts demonstrating the falsity of the
defendants’ assertions, as corroborated by the Rominski
affidavit. Instead, plaintiff only attacks the Rominski
affidavit. The Court will not deny the Motion to Dismiss on
that ground alone, especially when all the events and
discovery in this action since August of 1998 indicates that
defendants’ Motion should be granted.’
3. While defendants note that recent deposition testimony and
an affidavit provided by former and present Lucent employees
corroborate the Rominski affidavit, see Nagengast Deposition at 58-
59; Lack Deposition at 10-11; Declaration of Martin I. Finston, the
Court also notes that the Government’s presence in this case in
asserting the state secrets privilege established that at least some of
the work performed by defendants in regards to the Accused Device
(Cont'd)
60a
Appendix D
Ill. CONCLUSION.
For the reasons set forth in this Memorandum and Order,
the Court finds that ali the work performed by the defendants in
this matter with regard to the Accused Device was performed
for the United States Government with the authorization or
consent of the United States Government. As a result, the Court
of Federal Claims, not this district court, has the exclusive
jurisdiction over this cause of action. Therefore, defendants’
Motion to Dismiss shall be granted.
Accordingly,
IT IS HEREBY ORDERED that defendants’ Motion to
Dismiss [Document #8] is GRANTED. Plaintiff's claims shall
be dismissed without prejudice so that plaintiff can refile its
patent infringement claims in the Court of Federal Claims
against the United States Government if necessary and its state
law claims against defendants in a proper state court if necessary;
IT IS FURTHER ORDERED that to the extent the
Government has requested, orally or otherwise, that the Court
unseal its Memorandum and Order of March 24, 1999
[Document #70], such request is DENIED; and
(Cont'd)
was performed with the authorization or consent of the Government.
See Croydon Co., Inc., 831 F. Supp. at 484 (noting that Government
need not “expressly” provide authorization and consent to patent
infringement if it “effectively” gave such authorization “by
contracting for and accepting delivery cf the alleged infringing
manufacture’).
6la
Appendix D
IT IS FURTHER ORDERED that all other pending
motions in this matter are DENIED as moot.
An appropriate judgment shall accompany this
memorandum and order.
Dated this 25th day of August, 1999.
s/ E. Richard Webber
E. Richard Webber
UNITED STATES DISTRICT JUDGE
62a
APPENDIX E — ORDER OF THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT
OF MISSOURI, EASTERN DIVISION
DATED AND FILED MARCH 24, 1999
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
Case No. 4:98CV00913 ERW
FILED UNDER SEAL
CRATER CORPORATION,
Plaintiff,
VS.
LUCENT TECHNOLOGIES, INC. and
AMERICAN TELEPHONE AND
TELEGRAPH COMPANY,
Defendant(s).
ORDER
This matter is before the Court upon the United States’
Motion to Quash and for a Protective Order [Document #61],
plaintiff's Motion for this District Court to Dissolve its Stay
and Reset the Document Productions Previously Set by
Subpoena Duces Tecum [Document #66], and following this
Court’s in camera review of documents possessed by the
United States. Having reviewed the documents possessed by
the Government,
63a
Appendix E
IT IS HEREBY ORDERED that the United States’
Motion to Quash and for a Protective Order [Document #61] ]
is GRANTED. Having reviewed the documents in the
possession of the Government in camera, the Court concludes
that the United States is entitled to assert the state secrets
privilege in this case. The Court finds that exposure of the
information sought by plaintiff's discovery requests would
cause extremely grave damage to national security.
IT IS FURTHER ORDERED that plaintiff is prohibited
from conducting any discovery or serving any subpoena for
information relating to the manufacture or use of plaintiff's
coupling device, or any coupling device, by or on behalf of
the United States.
IT IS FURTHER ORDERED that the plaintiff's
Motion for This District Court to Dissolve its Stay and Reset
the Document Productions Previously Set by Subpoena
Duces Tecum [Document ##66] is DENIED in light of the
Court’s granting of the Government’s Motion tc Quash and
for a protective order. ~~
Dated this 24th day of March, 1999.
s/ E. Richard Webber
E. Richard Webber
UNITED STATES DISTRICT JUDGE
64a
APPENDIX F — ORDER OF THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT
OF MISSOURI, EASTERN DIVISION
DATED AND FILED SEPTEMBER 17, 1998
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
Case No. 4:98CV00913 ERW
CRATER CORPORATION,
Plaintiff,
vs.
LUCENT TECHNOLOGIES, INC. and AMERICAN
TELEPHONE AND TELEGRAPH COMPANY,
Defendant(s).
ORDER
This matter is before this Court upon Defendants’ Motion
to Dismiss [Document #8], Plaintiff's Motion for Leave to
File First Amended Complaint [Document #91, Plaintiff's
Motion to Strike Affidavit and Exhibits [Document #10],
Plaintiff's Motion for an Evidentiary Hearing [Document
#11], and Plaintiff’s Motion for a 90 Day Extension o1 fime
[Document #12]. In response to these motions and the
arguments made by both parties, the Court enters the
following order:
6Sa
Appendix F
1. The Court will defer ruling on defendants’ Motion to
Dismiss [Document #8] until after December 31, 1998.
2. The Court will defer ruling on plaintiff’s Motion to
Strike [Document #10] until after December 31, 1998.
3. The Court will defer ruling on plaintiff’s Motion for
Hearing [Document #11] until after December 31, 1998.
4. The Court will grant Plaintiff’s Motion for Extension
of Time To Do Discovery Before Ruling on Defendants’
Motion to Dismiss [Document #12]. Plaintiff has until
December 31, 1998 to respond to defendant’s Motion to
Dismiss. Defendants shall have ten days following plaintiff's
service of its response to defendants’ motion to reply thereto.
5. The Court will grant Plaintiff's Motion to File First
Amended Complaint [Document #91. The First Amended
Complaint is deemed filed as of September 17, 1998.
6. Defendants may answer the First Amended Complaint
after the Court’s ruling on pending motions.
7. Parties are granted until December 31, 1998 to
conduct discovery, beginning immediately, limited to the
subject matter jurisdictional issue under 28 U.S.C. §1498(a)
raised by defendants’ Motion to Dismiss and plaintiff's
opposition thereto. The parties are permitted to proceed with
discovery on the issues of (1) whether defendants made, used,
or sold the Accused Device (““Accused Device” meaning split
ball valve coupling device), to or for anyone other than the
United States of America, and (2) whether the United States
66a
Appendix F
Government gave its authorization or consent to defendants
for their manufacture or use of the Accused Device.
8.- Discovery related to classified information or
materials that are not related to the two issues listed above is
strictly prohibited. Any discovery related to classified
information or materials that are related to the two issues
listed above may proceed only after the Court makes further
orders in response to the parties’ motions or requests.
9. All other discovery, including but not limited to
discovery relating to claims of infringement, breach of
contract, or trade secrets, is stayed pending decision on
defendants’ motion to dismiss.
SO ORDERED
s/ E. Richard Webber
E. RICHARD WEBBER
UNITED STATES DISTRICT JUDGE
September 17, 1998
67a
APPENDIX G — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL CIRCUIT
DENYING PETITION FOR REHEARING
DATED AND FILED DECEMBER 6, 2005
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
04-1349
CRATER CORPORATION,
Plaintiff-Appellant,
V.
LUCENT TECHNOLOGIES, INC.
and AT&T COMPANY,
Defendants-Appellees,
and
UNITED STATES,
Defendant-Appellee.
ORDER
A petition for rehearing en banc having been filed by
the APPELLANT, and a response thereto having been invited
by the court and filed by the APPELLEES,* and the matter
having first been referred as a petition for rehearing to the
panel that heard the appeal, and thereafter the petition for
rehearing en banc and response having been referred to the
circuit judges who are in regular active service,
* The United States and Lucent Technologies Inc., et al. cach
filed a response.
68a
Appendix G
UPON CONSIDERATION THEREOF, it is
ORDERED that the petition for rehearing be, and the
same hereby is, DENIED and it is further
ORDERED that the petition for rehearing en bane be,
and the same hereby is, DENIED.
The mandate of the court will issue on December 13,
2005.
FOR THE COURT
s/ Jan Horbaly
Jan Horbaly
Clerk
Dated: December 6, 2005
69a
APPENDIX H — DECLARATION AND ASSERTION
OF MILITARY AND STATE SECRETS PRIVILEGE OF
RICHARD J. DANZIG, SECRETARY OF THE NAVY,
UNDATED
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
Case No. 4:98CV00913ERW
CRATER CORPORATION,
Plaintiff
We
LUCENT TECHNOLOGIES, INC., and AMERICAN
TELEPHONE AND TELEGRAPH COMPANY,
Defendants
DECLARATION AND ASSERTION OF MILITARY
AND STATE SECRETS PRIVILEGE OF RICHARD J.
DANZIG, SECRETARY OF THE NAVY
I, RICHARD J. DANZIG, HEREBY DECLARE:
1. I am currently the Secretary of the Navy of the United
States of America and the chief executive officer of the
Department of the Navy.
2. My statements in this Declaration are based on my
personal knowledge, on information provided to me in my
70a
Appendix H
official capacity, and on my evaluation of that information.
The purpose of this Declaration, along with my classified
declaration in this case, is to assert a formal claim of the
military and state secrets privilege in response to discovery
directed by plaintiff against defendants and various third-
parties.
3. As Secretary of the Navy, I am authorized to determine
the proper classification of information through the level of
TOP SECRET on behalf of the United States. My in camera
declaration submitted in this case is properly classified as
TOP SECRET, because its public disclosure could reasonably
be expected to cause extremely grave damage to national
security. This is the most serious degree of damage that
existing security criteria recognize.
4. I have been informed of plaintiff's discovery requests in
this case served upon defendants and of plaintiff's subpoenas
issued to third-parties. I have also been informed of the nature
of the claims in the case and the contention to which
plaintiff's discovery pertains, i.e., that defendants have
infringed plaintiff's patent for a coupling device and have
breached the terms of a purported arrangement with plaintiff.
I have been advised that defendants and, possibly third
parties, possess information responsive to plaintiff’s
discovery requests. I have also been advised of plaintiff's
motion to compel the production of documents and
information and the Court’s order regarding participation by
the United States to assert its interest in this matter.
5. The official activities of the Department of the Navy are
many and diverse, but all have a single objective — the
Tila
Appendix H
preservation of national security. In order to achieve that
objective, the Navy employs various methods, and conducts
various programs and operations.
6. As explained herein and in my classified declaration,
plaintiff's discovery in this case could be expected to cause
extremely grave damage to national security. Requiring
defendants and the private subpoena recipients to respond
to plaintiff's discovery would, directly or indirectly, provide
adversaries of the United States Government with
information concerning the operations and programs
described in my classified declaration. Those operations and
programs are currently ongoing. It is therefore my opinion
that disclosure of information concerning them would permit
potential adversaries to adopt specific measures to defeat or
otherwise impair the effectiveness of those operations and
programs.
7. Any further elaboration of this matter on the public record
would harm national security interests by revealing the
information the military and state secrets privilege is designed
to protect. My classified declaration explains in greater detail
why the discovery of any information relating to the
operations and programs described in my classified
declaration would pose a threat to national security.
8. Based on my personal consideration of the matter,
requiring responses to plaintiff s discovery, including that
directed to private companies, reasonably could be expected
to cause extremely grave damage to the vital national security
interests of the United States. Accordingly, I formally invoke
the military and state secrets privilege in order to foreclose
72a
Appendix H
any discovery relating to the manufacture or use of plaintiff's
coupling device or any coupling device by or on behalf
of the Government I also invoke this privilege over the
in camera declarations describing the operations and
programs involved.
I declare under penalty of perjury that the foregoing is true
and correct.
s/ Richard J. Danzig
Richard J. Danzig
Secretary of the Navy
(>) FILED
MAY 1¢ 2006
OFFICE GF °F: AE “EE 3€
No. 05-1135 | SUPREME Cons?
In the Supreme Court of the Anited States
CRATER CORPORATION, PETITIONER
v.
LUCENT TECHNOLOGIES, INC., ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
PAUL D. CLEMENT
Solicitor General
Counsel of Record
PETER D. KEISLER
Assistant Attorney General
MARK B. STERN
ALISA B. KLEIN
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether the court of appeals correctly applied
settled law in sustaining the government’s invocation of
the state secrets privilege, and remanding for further
proceedings.
TABLE OF CONTENTS _
Opinions below
Jurisdiction .
Statement
PI a 55 5G is oo oo RRR Sod RK oe A a aes 5
Conclusion
TABLE OF AUTHORITIES
Cases:
Bareford v. General Dynamics Corp., 973 F.2d 1138
(5th Cir. 1992), cert. denied, 507 U.S. 1029 (1993)
Black v. United States, 62 F.3d 1115 (8th Cir. 1995),
cert. denied, 517 U.S. 1154 (1996)
Crater Corp. v. Lucent Technologies, Inc., 255 F.3d
1361 (Fed. Cir. 2001)
Douglas v. Windham Superior Court, 597 A.2d 774
(Vt. 1991)
Duncan v. Cammell, Laird & Co., [1942] App. Cas.
624 (appeal taken from C.A.)
Kasza v. Browner, 133 F.3d 1159 (9th Cir.), cert.
denied, 525 U.S. 967 (1998)
Kerr v. United States Dist. Court, 511 F.2d 192 (9th
Cir. 1975), aff'd, 426 U.S. 394 (1976)
Northrop Corp. v. McDonnell Douglas Corp., 751
F.2d 395 (D.C. Cir. 1984)
United States v. O'Neill, 619 F.2d 222 (3d Cir. 1980)
United States v. Reynolds, 345 U.S. 1 (1953)
Statute:
28 U.S.C. 1498(a)
In the Supreme Court of the Gnited States
No. 05-1135
CRATER CORPORATION, PETITIONER
Vv.
LUCENT TECHNOLOGIES, INC., ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a-25a)
is reported at 423 F.3d 1260. The opinion of the district
court (Pet. App. 26a-34a) is unreported.
JURISDICTION
The judgment of the court of appeals was entered on
September 7, 2005. A petition for rehearing was denied
on December 6, 2005 (Pet. App. 67a-68a). The petition
for a writ of certiorari was filed on March 6, 2006. The
jurisdiction of this Court is invoked under 28 U.S.C.
1254(1).
STATEMENT
1. Petitioner brought this suit against Lucent Tech-
nologies, Inc., and AT&T Company, alleging patent in-
(1)
2
fringement and related state law claims for misappropri-
ation of trade secrets and breach of contract. The gov-
ernment intervened to assert the state secrets privilege,
seeking to prohibit petitioner from conducting any dis-
covery of information relating to the manufacture or use
of petitioner’s patented device by or on behalf of the
United States. Pet. App. 4a.
To support the assertion of privilege, the government
submitted public and classified declarations of the Sec-
retary of the Navy and, later, the Acting Secretary of
the Navy. The public declarations explained that any
discovery into defendants’ alleged use of petitioner’s
patented device for or on behalf of the United States
government could be expected to cause “extremely
grave damage” to national security by providing adver-
saries of the United States with information concerning
ongoing programs and operations. Pet. App. 4a-5a; C.A.
App. 504, 1303. The details of the threat to national se-
curity were provided in “TOP SECRET” declarations
submitted for the district court’s 7x camera review. Id.
at 503.
After reviewing the classified declarations, the dis-
trict court issued the protective order sought by the gov-
ernment, barring petitioner from seeking any informa-
tion about the use or manufacture of petitioner’s pat-
ented device by or for the government. Pet. App. 6a.
The district court allowed discovery, however, into
whether defendants had used the patented device for
any non-governmental purpose. /d. at 56a. Ultimately,
the district court held that the evidence showed that all
of defendants’ work on the allegedly infringing coupler
was done for the United States and that therefore the
court lacked jurisdiction over the patent infringement
claim under 28 U.S.C. 1498(a). That provision makes a
3
suit against the United States the exclusive remedy
when a patented device is manufactured or used by the
United States. /bid.
The court of appeals affirmed that ruling, although
it held that Section 1498(a) supplies an affirmative de-
fense rather than a basis for denial of jurisdiction. The
court then remanded the case to the district court to
determine whether to exercise supplemental jurisdiction
over petitioner’s remaining state law claims for misap-
propriation of trade secrets and breach of contract. Pet.
App. 6a-8a, 35a-53a; Crater Corp. v. Lucent Technolo-
gies, Inc., 255 F.3d 1361 (Fed. Cir. 2001).
2. On remand, the district court exercised supple-
mental jurisdiction over the state law claims. Pet. App.
26a-34a. In response to petitioner’s subsequent discov-
ery requests to both Lucent and the United States, the
government reviewed roughly 26,000 pages of poten-
tially responsive materials to determine whether the
privileged information could be removed and a partial
production thus made. /d. at 26a-29a. The government
ultimately opposed the discovery and submitted the pub-
lic and classified declarations of the Acting Secretary of
the Navy in support of its privilege claim. C.A. App.
1298-1304.
The Acting Secretary confirmed that the threat to
national security identified in the earlier declarations
remained “equally relevant,” C.A. App. 1300, and con-
cluded that relevant information could not be redacted
or otherwise sanitized in a manner that would avoid
damaging national security. /d. at 1301. To the con-
trary, he concluded that disclosing “even limited por-
tions of the information would reasonably be expected to
cause serious or exceptionally grave damage to the na-
4
tional security because the mosaic of information would
reveal privileged information.” /d. at 1301-1302.
The district court conducted an in camera review of
the roughly 26,000 pages of documents responsive to pe-
titioner’s discovery requests. The court held that peti-
tioner’s claims could not be tried without implicating
matters at the core of the state secrets privilege, and
dismissed the case. Pet. App. 9a-10a, 30a-33a.
3. The court of appeals remanded for further pro-
ceedings. Pet. App. la-25a. A divided panel rejected
petitioner’s contention that the state secrets privilege
was not properly invoked because the Secretary and
Acting Secretary of the Navy did not review the docu-
ments asserted to be privileged. The court explained
that it was sufficient that the Secretary and Acting Sec-
retary “were informed of the nature and scope of the
documents sought in discovery, and that each then made
the ultimate policy determination, based on his personal
knowledge, that disclosure of the material sought would
jeopardize a legitimate state secret and pose a threat to
national security.” /d. at 12a.
The court reversed the order dismissing the com-
plaint, however, finding the record inadequately devel-
oped to allow the court to determine whether the asser-
tion of privilege required dismissal of petitioner’s com-
plaint. Pet. App. 14a-19a. The court observed that al-
though petitioner alleged misappropriation of trade se-
crets, it had never identified the trade secrets that were
at issue. /d. at 15a-16a. Likewise, although petitioner
alleged a breach of contract, the existence of a contract
was in dispute. /d. at 17a. The court explained that,
under those circumstances, it might not be necessary to
reach the issue of the impact of the state secrets privi-
lege if “there are no alleged trade secrets and there was
—
o
no contract.” /bid. Alternatively, the court concluded,
“if there are trade secrets and/or there was a contract,
an understanding of the precise nature of the trade se-
crets and the terms of the contract is essential to the
analysis of whether [petitioner’s] misappropriation of
trade secrets and breach of contract claims may proceed
in the face of the assertion of the privilege.” /bid. The
court accordingly remanded for further development of
the record. Jd. at 18a-19a.
Judge Newman filed an opinion concurring in part
and dissenting in part. Pet. App. 2la-25a. Judge
Newman concurred in the remand for further proceed-
ings but observed that the protective order sustained by
the court might prove an insurmountable obstacle to peti-
tioner’s ability to proceed -with its claims on remand. /d.
at 2la-23a. She would have remanded for an adjudica-
tion on the merits of petitioner’s claims in an in camera
proceeding. /d. at 25a.
ARGUMENT
The interlocutory decision of the court of appeals is
correct and does not conflict with any decision of this
Court or any other court of appeals. Further review is
therefore not warranted.
1. The state secrets privilege permits the United
States to prevent the unauthorized disclosure in litiga-
tion of information that may adversely affect national
security interests. United States v. Reynolds, 345 U.S.
1, 7-8 (1953). To invoke the state secrets privilege,
“(t]here must be a formal claim of privilege, lodged by
the head of the department which has control over the
matter, after actual personal consideration by that offi-
cer.” /bid. (footnote omitted).
6
Petitioner argues (Pet. 14-19) that the court of ap-
peals’ decision conflicts with Reynolds because the head
of the Navy did not personally review any documents
responsive to petitioner’s discovery requests. That
claim lacks merit. The privilege was invoked by the Sec-
retary and Acting Secretary of the Navy, who were in-
formed of the nature and scope of the documents sought
in discovery, and who made the ultimate policy determi-
nation, based on personal knowledge, that disclosure of
the material sought would jeopardize a legitimate state
secret and would pose a threat to national security. The
Acting Secretary further determined that relevant infor-
mation could not be redacted or otherwise sanitized in a
manner that would avoid damaging national security.
As the panel explained, that process readily satisfied
the Reynolds requirement that the head of the agency
give “actual personal consideration” to the matter. The
Secretary and Acting Secretary were not required to
review each of the 26,000 pages of documents responsive
to petitioner’s discovery in order to assert privilege over
a category of information, 7.e., any information relating
to the manufacture or use of petitioner’s patented device
for the United States. It is well-established that an
agency head may assert the privilege over a particular
subject matter, as was done here. See, e.g., Kasza v.
Browner, 133 F.3d 1159, 1169 (9th Cir.) (“In a case such
as this, the Secretary, once she has properly invoked the
claim of privilege and adequately identified categories of
privileged information, cannot reasonably be expected
personally to explain why each item of information argu-
ably responsive to a discovery request affects the na-
tional interest.”), cert. denied, 525 U.S. 967 (1998); Bare-
ford v. General Dynamics Corp., 973 F.2d 1138, 1141-
1142 (5th Cir. 1992) (where the government does not
7
target documents but objects to a claim that would re-
quire disclosure of sensitive information, the agency
head need only review the “type of evidence” necessary
to support the claim), cert. denied, 507 U.S. 1029 (1993);
accord Northrop Corp. v. McDonnell Douglas Corp., 751
F.2d 395, 400 (D.C. Cir. 1984) (the Secretary of Defense
properly had “reviewed a representative sample of the
documents as well as affidavits of staff members who
had received all of the documents”). The head of the
Navy
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