It is back to state court for Acer America Corp., after the Federal Circuit held that Acer’s state law trade secret claims should never have been removed to federal court in the first instance. Intellisoft Ltd. v. Acer America Corp., No. 19-1522. Vacating the district court’s judgment in Acer’s favor, the Federal Circuit reiterated longstanding precedent that only a “special and small category” of cases involving state law claims, such as those requiring resolution of a substantial patent question, give rise to federal subject matter jurisdiction. Cases in which a party merely uses patents as evidence of trade secret misappropriation are not among them.
Intellisoft sued Acer in state court, contending that Acer had violated California’s Uniform Trade Secret Act by using Intellisoft’s trade secrets. Three years later, as the case neared trial, one of Intellisoft’s experts opined that its trade secrets had been developed by its president, Bruce Bierman, that Bierman “should have been named [at least] as a co-inventor” of a family of patents issued to Acer, and that those patents were evidence of Acer’s trade secret theft. At his deposition, the expert testified that “‘this is not an inventorship dispute case. It just happens to be the facts in this case.’”
Acer moved to amend its answer by adding a state court cross-claim, alleging that Intellisoft was in essence alleging co-inventorship of Acer’s patents and seeking a declaratory judgment regarding inventorship. Before the state court could rule on the motion, Acer removed the action to the Northern District of California under 28 U.S.C. §§ 1441 and 1454. The district court denied Intellisoft’s motion to remand and later granted Acer’s motion for summary judgment.
The Federal Circuit reversed and remanded, holding that the district court should have granted Intellisoft’s motion to remand. Section 1441 (and Section 1338(a) on which it relies) provides for federal subject matter jurisdiction over state law claims only when a federal issue is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” The court rejected Acer’s assertions that the Intellisoft’s misappropriation claims necessarily relied on proving that Intellisoft’s president was the inventor of the technology claimed in Acer’s patents. Intellisoft’s mere “reliance on a patent as evidence to support its state law claims does not necessarily require resolution of a substantial patent question.” The Court likewise rejected Acer’s argument under Section 1454, which allows for removal when a party asserts a claim for relief under the Patent Act. Because Acer had merely proposed to amend its counterclaim—the state court had yet not permitted such amendment— the proposed amendment was not contained in an operative pleading, and Section 1454 formed no basis for removal.
The Federal Circuit’s opinion reaffirms that state law claims ordinarily are not subject to removal absent the existence of facts showing that the stringent requirements prescribed by the removal statutes are met. This has important repercussions for defendants facing suits by non-practicing entities. As patent litigation by NPEs has slowed because of recent Supreme Court and Federal Circuit precedent and the rise of inter partes reviews courtesy of the America Invents Act, we are seeing an uptick of trade secret litigation brought in state court under state trade secret laws. As the Intellisoft decision demonstrates, parties evaluating whether to remove such cases must be mindful of both the substantive and procedural requirements for removal.