Computer Associates International, Inc. v. Altai, Inc.

918 S.W.2d 453, 11 I.E.R. Cas. (BNA) 923, 39 Tex. Sup. Ct. J. 422, 1996 Tex. LEXIS 29, 1996 WL 112172
CourtTexas Supreme Court
DecidedMarch 14, 1996
Docket94-0433
StatusPublished
Cited by631 cases

This text of 918 S.W.2d 453 (Computer Associates International, Inc. v. Altai, Inc.) is published on Counsel Stack Legal Research, covering Texas Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Computer Associates International, Inc. v. Altai, Inc., 918 S.W.2d 453, 11 I.E.R. Cas. (BNA) 923, 39 Tex. Sup. Ct. J. 422, 1996 Tex. LEXIS 29, 1996 WL 112172 (Tex. 1996).

Opinions

ENOCH, Justice,

delivered the opinion of the Court on Motion for Rehearing,

in which PHILLIPS, C.J., and GONZALEZ, HECHT, CORNYN, SPECTOR and BAKER, JJ., join.

The motion for rehearing is overruled. Our opinion of June 8, 1995, is withdrawn and the following is substituted in its place.

This case comes to us on certified questions from the United States Court of Appeals for the Second Circuit. Computer Assocs. Int'l, Inc. v. Altai, Inc., 22 F.3d 32 (2d Cir.1994).1 We are asked to decide two issues: (1) whether the discovery rule exception to section 16.003(a) of the Texas Civil Practice and Remedies Code applies to claims for misappropriation of trade secrets; and if not, (2) whether the application to such claims of the two-year limitations period provided by section 16.003(a) contravenes the “open courts” provision of Article I, Section 13 of the Texas Constitution. We hold that the discovery rule exception does not apply to the claim for misappropriation of trade secrets and that application of section 16.003(a) does not violate the Texas Constitution.

I

Claude Amey, a developer of computer software, was employed by Computer Associates International, Inc., in its Dallas office from 1978 until January 1984. During his employment, Arney signed an employment agreement which prohibited him from retaining or divulging Computer Associates’ trade secrets. In January 1984, Arney left Computer Associates to accept employment at Altai, Inc. In an exit interview, Arney represented that he retained no proprietary information of Computer Associates and would not divulge Computer Associates’ trade secrets to any third party. However, when Arney left Computer Associates he took copies of the computer source code for two versions of ADAPTER. ADAPTER is an operating system compatibility component of CA-SCHEDULER, which is a job scheduling program for IBM mainframe computers. ADAPTER connects CA-SCHEDULER with the three different operating systems used on IBM mainframe computers and enables CA-SCHEDULER to run on any of the IBM operating systems. ADAPTER was also used with a group of Computer Associates’ programs called the DYNAM line. However, ADAPTER is not a separate product and is not capable of operating as an independent product. Before Arney left Computer Associates, Altai developed ZEKE, a job scheduling program for IBM mainframe computers which was similar to CA-SCHEDULER. In early 1984, Arney copied approximately thirty percent of the ADAPTER source code to write OSCAR 3.4 for Altai. It is undisputed that no one at Altai (other than Arney) knew that Arney possessed the ADAPTER source code or that Amey had copied portions of the source code when he created OSCAR 3.4. OSCAR 3.4 is Altai’s operating system compatibility component which was used in several of Altai’s programs, including ZEKE. Like ADAPTER, OSCAR 3.4 is not a separate product and is not capable of operating as an independent product. From 1985 to August [455]*4551988, Atai used OSCAR 8.4 as a component of several of its computer programs that competed with several of Computer Associates’ programs.

In July 1988, Computer Associates first discovered that Atai had copied and used the ADAPTER source code in several of its computer programs. In August 1988, Computer Associates sued Atai in federal district court for misappropriation of trade secrets and copyright infringement. Among other things, the federal district court determined that Computer Associates’ action for misappropriation of trade secrets under Texas law was preempted by the federal copyright act. Computer Assocs. Int’l, Inc. v. Altai, Inc., 775 F.Supp. 544, 563-66 (E.D.N.Y.1991). The United States Court of Appeals reversed and remanded for further consideration of Computer Associates’ misappropriation claims. Computer Assocs. Int’l, Inc. v. Altai Inc., 982 F.2d 693, 720-21 (2d Cir.1992). On remand, the district court determined that the discovery rule exception did not apply and that Computer Associates’ action for misappropriation of trade secrets was barred by section 16.003(a) of the Texas Civil Practice and Remedies Code. Computer Assocs. Int'l, Inc. v. Altai Inc., 832 F.Supp. 50, 51-52 (E.D.N.Y.1993). Subsequently, the United States Court of Appeals certified the questions to this Court. Computer Assocs. Int’l, Inc. v. Altai Inc., 22 F.3d 32 (2d Cir.1994).

II

Computer Associates argues that the discovery rule exception to the two-year statute of limitations should apply to a claim of misappropriation of trade secrets. A trade secret is any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it. Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 776, cert. denied, 358 U.S. 898, 79 S.Ct. 223, 3 L.Ed.2d 148 (1958) (quoting Restatement of ToRts § 757 (1939)). A cause of action for misappropriation of trade secrets accrues when the trade secret is actually used. Id., 314 S.W.2d at 769. The parties do not contest that, upon accrual, section 16.003(a) of the Texas Civil Practice and Remedies Code establishes a two-year statute of limitations for injury to the property of another or conversion of the property of another. In this case, Atai first used the source code in 1985. Not until 1988 did Computer Associates file its suit. Atai concedes that Computer Associates did not know about the use of the source code until 1988. The question is whether we should permit the discovery rule exception in these circumstances.

To answer this question, we must understand the objective of statutes of limitations. The purpose of statutes of limitations is to compel the assertion of claims within a reasonable period while the evidence is fresh in the minds of the parties and witnesses. Price v. Estate of Anderson, 522 S.W.2d 690, 692 (Tex.1975); Gaddis v. Smith, 417 S.W.2d 577, 578 (Tex.1967). “Society’s interest in repose is to have disputes either settled or barred within a reasonable time. It is based on the theory that the uncertainty and insecurity caused by unsettled claims hinder the flow of commerce.” Safeway Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 545 (Tex.1986). The discovery rule exception defers accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action. Trinity River Auth. v. URS Consultants, 889 S.W.2d 259, 262 (Tex.1994); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990). The discovery rule, in application, proves to be a very limited exception to statutes of limitations.

Similar to the discovery rule exception, where fraud is alleged, we have granted the claimant the benefit of deferring the cause of action until the claimant discovered or should have discovered the fraud. Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738, 739 (1943); Quinn v. Press, 135 Tex. 60, 140 S.W.2d 438, 440 (1940).

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918 S.W.2d 453, 11 I.E.R. Cas. (BNA) 923, 39 Tex. Sup. Ct. J. 422, 1996 Tex. LEXIS 29, 1996 WL 112172, Counsel Stack Legal Research, https://law.counselstack.com/opinion/computer-associates-international-inc-v-altai-inc-tex-1996.