CAFC OKs Transfer to Court of Claims on Trade Secret Claim

By Gene Quinn
July 29, 2013

Several weeks ago the United States Court of Appeals for the Federal Circuit issued a rather interesting decision in a case that had initially been appealed up to the Unite States Court of Appeals for the Fifth Circuit. See United States Marine, Inc. v. United States (Fed. Cir., July 15, 2013).

United States Marine, Inc. (USM) sued the United States government in the United States District Court for the Eastern District of Louisiana under the Federal Tort Claims Act (FTCA), 28 U.S.C. § 1346(b) and 28 USC §2674. USM alleged that the United States misappropriated USM’s trade secrets. Specifically, USM claimed that the United States Navy, which had lawfully obtained USM’s proprietary technical drawings under a contract (to which USM was not a party), owed USM a duty of secrecy that it breached by disclosing those drawings to a rival private firm for use in designing military boats for the government.

The case was straight forward enough, at least through the end of trial. After the district court found the United States liable for trade-secret misappropriation and awarded USM damages, the government appealed to the United States Court of Appeals for the Fifth Circuit claiming that the district court lacked jurisdiction.

[Varsity-1-text]

The Fifth Circuit ultimately determined that the district court lacked jurisdiction over USM’s claims under the FTCA. The Fifth Circuit reasoned that the Navy’s liability and USM’s recovery depended on the interpretation of a federal-government contract and, therefore, the Court of Federal Claims had exclusive jurisdiction under the Tucker Act, 28 U.S.C. § 1491(a)(1). As a result the Fifth Circuit vacated the district court’s judgment and remanded for transfer of the case to the Claims Court under 28 U.S.C. § 1631.

There was a dissent at the Fifth Circuit. According to Judge Elrod, because USM was not a contracting party nor an implied third-party beneficiary to the contract with the Navy, there was no privity between USM and the United States and the claim was not a proper contract cause of action, but instead was a tort claim outside the Claims Court’s jurisdiction under the Tucker Act.

After the Fifth Circuit reversed, vacated and remanded, not surprisingly, the district court transferred the case to the Claims Court. USM appealed this transfer to the Federal Circuit.

Whether the Federal Court of Claims has exclusive jurisdiction is significant because there is a long line of cases that say that the plaintiff will lose tort causes of action against the government if they are before the Court of Federal Claims. Trade secret misappropriation, which was the theory asserted and which USM prevailed upon at the now vacated trial, is of course not a contract theory but a tort theory.

USM argued at the Federal Circuit that it would be barred from any recovery under any theory they could pursue in the Court of Federal Claims. The Federal Circuit did recognize that tort claims cannot be brought, but would not say that they were categorically without any possible remedy. In rather strained reasoning the Federal Circuit explained that USM may have claims they could bring that are founded upon an express or implied contract. To me that seems like an extraordinary stretch given that USM was not a party to the contract and was not a third-party beneficiary.

Notwithstanding the stretch that there could be some kind of action supported based on express or implied contract, the government did argue that the Court of Claims would have jurisdiction. The Federal Circuit explained:

[T]he government’s jurisdictional position here, together with our acceptance of it, legally settles the threshold question whether USM is among those authorized to recover upon proof of breach of contract, injury, and amount of damages.

The Federal Circuit would go on later to say that as a matter of binding precedent and of judicial estoppel the government is foreclosed from arguing that the Court of Claims lacks jurisdiction. And it follows that this court’s action in now adopting the government’s argument and affirming the transfer order, which depends on the Claims Court’s having jurisdiction, establishes that right, as a matter of binding precedent and judicial estoppel. Thus, USM will be able to recover from the government “upon proof of breach of contract, injury, and amount of damages.”

In the conclusion the Federal Circuit explained that they are not deciding the case in the first instance on their own, so they do not have to determine whether they think the Fifth Circuit was correct. This, together with the tone of the decision and finding judicial estoppel to prevent the government from changing their argument, suggests that the Federal Circuit did not agree with the Fifth Circuit and was more inclined to accept Judge Elrod’s dissent. However, the Federal Circuit ultimately concluded: “[W]e cannot say that the Fifth Circuit’s determination, that in this case it is the FTCA that gives way, is clearly wrong.”

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently No Comments comments.