Public-key encryption was supposedly invented at GCHQ by James Ellis, Clifford Cocks and Malcolm Williamson in 1975, one year before Diffie and Hellman published their paper. The work had to be kept secret though, so they never published it.

Ellis conceived of practical public-key crypto PRIOR to Diffie but it was classified at GCHQ. Diffie wanted to know how Ellis invented it after he had heard this was the case.

Ellis was working at GCHQ and couldn't openly talk about his work.

stephen levy's book 'crypto' is pretty nice which can give you a sort of 'fly-on-the-wall' view of the whole thing :)