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 CAFC (04-1349) agreed, effectively sinking Crater's patent infringement case against Lucent.

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 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. Id. at 1369.

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.

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 against them.

In dissent, Judge Newman thought the CAFC should look into the matter, that it was not beyond judicial review.

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.

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 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).

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.

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.