The Federal Circuit recently rejected an attempt to avoid a trade secret trial in state court by invoking federal jurisdiction under patent law. Intellisoft discovered, in the early 2010’s, that Acer had applied for a patent which incorporated its alleged trade secrets.  Intellisoft sued Acer in March 2014 in California state court asserting various state law claims, including trade secret misappropriation. The Acer patent was thus a key component of Intellisoft’s trade secret misappropriation evidence and was the subject of fact and expert discovery by both parties.

The case proceeded in state court for three years. As discovery wrapped up, one of Intellisoft’s experts opined that an Intellisoft employee – who created some aspects of the trade secrets at issue – should be named as an inventor on Acer’s patent. Additionally, a second Intellisoft expert opined that portions of the Acer patent’s claims corresponded to various Intellisoft trade secrets.

Shortly before trial was set to begin, Acer used this expert testimony as grounds for seeking to amend its pleading to seek declaratory relief that the Intellisoft employee was not an inventor of the Acer patent and that Intellisoft’s case necessarily raised patent law issues. Acer then removed the case to district court because the new claim arose under 35 U.S.C. 256 (the federal statute governing correction of inventorship). The district court denied a motion from Intellisoft to remand the case back to California state court, and the case proceeded to a judgment in district court.

On appeal, the Federal Circuit evaluated the district court’s jurisdiction and found that Intellisoft’s trade secret claim did not “necessarily raise” patent law issues. Here, the Acer patent was only being used as evidence of misappropriation. Intellisoft did not need to prove it owned the patent, nor did it need to prove that Acer’s products infringed the Acer patent, and the state court did not need to construe any patent claims. Thus, no patent law issues were necessarily implicated. Second, the Federal Circuit found that were was no operative pleading under which Acer’s claim arose. Before removing the case, Acer had merely requested to amend its answer to add its patent inventorship counterclaim; the court had not yet permitted amendment. Thus, no claim involving patent law had been formally pled.  As a result, the Federal Circuit remanded the case back to district court, with an order for the district court to further remand the case back to California state court.

Given the increase in trade secret litigation and the tandem patent issues that often arise, both trade secret plaintiffs and trade secret defendants should be aware of ways that a state court can lose its jurisdiction – and the substantive and procedural pitfalls that may prevent removal to a federal court.