Computer Associates Intern., Inc. v. Altai, Inc.

• Decision Date: 07 April 1994
• Docket Number: D,No. 1090,1090
• Parties: COMPUTER ASSOCIATES INTERNATIONAL, INC., Plaintiff-Appellant, v. ALTAI, INC., Defendant-Appellee. ocket 93-7957.
• Court: U.S. Court of Appeals — Second Circuit

Page 32

22 F.3d 32

COMPUTER ASSOCIATES INTERNATIONAL, INC., Plaintiff-Appellant, v. ALTAI, INC., Defendant-Appellee.

No. 1090, Docket 93-7957.

United States Court of Appeals, Second Circuit.

April 7, 1994.

Present: MAHONEY, WALKER, CAMPBELL, ^* Circuit Judges.

ORDER

This appeal from the United States District Court for the Eastern District of New York, George C. Pratt, Circuit Judge, ¹ came on to be heard on the transcript of record from said district court, and was argued by counsel. On consideration of the briefs, appendix, record, and oral argument in this appeal, it is hereby ORDERED that the Clerk of this Court transmit to the Clerk of the Supreme Court of Texas a Certificate in the form attached, together with a complete set of the briefs, appendix, and record filed with this Court by the parties. This panel retains jurisdiction so that, once we receive a response from the Supreme Court of Texas, we may dispose of all the issues raised in this appeal. The parties are hereby ordered to bear equally such fees and costs, if any, as may be requested by the Supreme Court of Texas.

                APPENDIX
                UNITED STATES COURT OF APPEALS
                FOR THE SECOND CIRCUIT
                ________________
                Docket No. 93-7957
                ________________
                COMPUTER ASSOCIATES INTERNATIONAL, INC
                Plaintiff-Appellant
                --against--
                ALTAI, INC
                Defendant-Appellee
                ________________
                

Certificate to the Supreme Court of Texas pursuant to Tex.R.App.P. 114(a) (West 1993) (permitting certification of questions of state law for which there is no controlling precedent in the decisions of the Supreme Court of Texas).

In January 1984, Claude F. Arney, III left the Texas offices of his employer of five years, Computer Associates International, Inc. ("CA"), a developer of computer software, to go to work for a competitor, Altai, Inc. ("Altai"). See Computer Assocs. Int'l v. Altai, Inc., 775 F.Supp. 544, 553 (E.D.N.Y.1991) ("Altai I,"), aff'd in part, vacated in part, and remanded, 982 F.2d 693 (2d Cir.1992). When Arney left, he took with him copies of the computer source code ¹ listings for two versions of a CA program known as ADAPTER (a component of another CA program called CA-SCHEDULER), in knowing violation of a CA employment agreement which he had signed that prohibited the retention of such materials. Id. at 552-53. Arney then undertook to write a program for Altai known as OSCAR. The first version of this program, which performs a task similar to CA's ADAPTER, was designated OSCAR 3.4. Arney copied approximately thirty percent of the source code comprising OSCAR 3.4 from the source code of ADAPTER. Id. at 552. Other than Arney, no one at Altai knew that Arney possessed the ADAPTER source code or that he had copied that code in creating OSCAR 3.4. Id. at 554. From 1985 to August 1988, Altai used OSCAR 3.4 in several of its computer programs that competed with CA-SCHEDULER. Id. at 552, 554.

In late July 1988, CA first learned that Altai might have copied the ADAPTER program. Id. at 554. After confirming its suspicions, CA secured copyrights on versions 2.1 and 7.0 of CA-SCHEDULER. Id. In August 1988, CA brought suit against Altai in federal district court, invoking diversity jurisdiction. ² See 28 U.S.C. Sec. 1332 (1988). CA alleged that Altai had infringed CA's copyright in ADAPTER and had misappropriated CA's trade secrets. Altai I, 775 F.Supp. at 554. Upon receiving CA's complaint, Altai immediately investigated the allegations and learned that Arney had copied portions of the ADAPTER code. Id. James P. Williams, an employee of Altai who became its president on October 31, 1988, reviewed with Arney which portions of OSCAR Arney had copied and which he had developed independently. In conducting this review, Arney again consulted the ADAPTER code, but neither Williams nor any of Altai's other programmers ever examined the ADAPTER code, which was locked away before Altai began rewriting OSCAR. Id.

After consulting counsel about how to proceed, Williams organized an operation to rewrite the OSCAR program. Working primarily from a different Altai program, Williams wrote descriptions of various services that the rewritten OSCAR would perform. Id. Williams then instructed Altai's programmers, none of whom had worked on OSCAR 3.4, to write appropriate code to obtain those services. In doing so, the programmers were forbidden to contact Arney or to refer to OSCAR 3.4. Id. The resulting program was designated OSCAR 3.5. Upon its completion, Altai shipped OSCAR 3.5 to its new customers, and also provided OSCAR 3.5 as a "free upgrade" to all customers who had purchased OSCAR 3.4. Id.

After a bench trial, the district court found that Altai's OSCAR 3.4 computer program had infringed the ADAPTER component of CA's copyrighted computer program CA-SCHEDULER. Id. at 558. The court awarded CA a total of $364,444 in actual damages and apportioned profits on copyright claims stemming from OSCAR 3.4. Id. at 572. The district court also determined, however, that OSCAR 3.5 was neither substantially similar to nor copied from ADAPTER, and accordingly denied CA relief on its copyright claims regarding that version of Altai's program. Id. at 561-62. Finally, although noting that Texas state law would govern CA's trade secret misappropriation claim, id. at 566, the district court concluded that CA's misappropriation claim against Altai had been preempted by the federal Copyright Act. Id. at 563-66. While recognizing that the torts of misappropriation and copyright infringement might be distinct in some cases, the district court reasoned that on the facts of this case, the claims "boil[ed] down to the same thing--a right of action for the unauthorized reproduction of, and preparation of derivative works based on, ADAPTER." Id. at 564. Because both claims involved a copyrightable work, the district court concluded that "all claims concerning copying [are] governed, exclusively, by federal [copyright] law." Id. at 565.

Altai did not perfect an appeal from the award of damages with respect to OSCAR 3.4, but CA appealed the denial of relief with respect to OSCAR 3.5. See Computer Assocs. Int'l v. Altai, Inc., 982 F.2d 693, 696-97 (2d Cir.1992) ("Altai II "). We affirmed the district court's ruling that OSCAR 3.5 did not infringe CA's copyright in ADAPTER, id. at 714-15, and also agreed with the district court that Texas law would govern CA's trade secret misappropriation claims (if they were not preempted by federal law). Id. at 718. As to preemption, we noted that if CA's misappropriation claims involved an "extra element" that was not included in its copyright claims and rendered the misappropriation claims "qualitatively different" from the copyright claim, the misappropriation claims would not be preempted. See id. at 716. Concluding that such an element, beyond mere copying, might be established on the basis that Altai had constructive notice of misappropriation with respect to OSCAR 3.4, see id. at 718-19, or that Altai's conceded knowledge of misappropriation when it developed OSCAR 3.5 may have resulted in the embodiment of CA trade secrets therein despite the preventive measures taken by Altai, see id. at 719-21, we remanded for further consideration of CA's misappropriation claims. Id. at 720-21.

On remand, the parties briefed the trade secret issues under Texas law. Altai also asserted the affirmative defense, first invoked in its answer and also presented in its post-trial memorandum, that CA's claims were barred by the applicable Texas statute of limitations, Texas Civil Practice & Remedies Code Ann. Sec. 16.003(a) (Vernon 1986). ³ See Computer Assocs. Int'l v. Altai, Inc., 832 F.Supp. 50, 51-52 (E.D.N.Y.1993) ("Altai III "). That provision states, in pertinent part:

A person must bring suit for trespass for injury to the estate or to the property of another, conversion of personal property, [or] taking or detaining the personal property of another ... not later than two years after the day the cause of action accrues.

The Texas Court of Civil Appeals (now designated the Court of Appeals) has applied article 5526 of the Texas Civil Statutes, the forerunner of Sec. 16.003, to claims involving the misappropriation of trade secrets. See Reynolds-Southwestern Corp. v. Dresser Indus., 438 S.W.2d 135, 140 (Tex.Civ.App.1969) (applying art. 5526 to trade secret claim); see also Coastal Distrib. Co. v. NGK Spark Plug Co., 779 F.2d 1033, 1038 (5th Cir.1986) (same) (collecting cases).

Under Texas law, the statute of limitations on tort claims generally begins to run when "the wrongful act effects an injury, regardless of when the plaintiff learned of such injury." Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990). This general rule of accrual applies unless modified by the "discovery rule," which, when applicable, provides that the period of limitations for a tort action "run[s] from the date the plaintiff discovers or should have discovered, in the exercise of reasonable care and diligence, the nature of the injury." Willis v. Maverick, 760 S.W.2d 642, 644 (Tex.1988) (citing Gaddis v. Smith, 417 S.W.2d 577, 578 (Tex.1967)).

The district court declined to address the merits of CA's misappropriation claims on remand, instead dismissing them as barred under Sec. 16.003(a). Although the district court had earlier opined that CA's claims for misappropriation of trade secrets would be subject to the discovery rule under Texas law, see Altai I, 775 F.Supp. at 566, after further consideration upon remand, the court declined to apply the discovery rule in this case. The court noted that no Texas court had unambiguously applied the discovery rule to claims involving the misappropriation of trade secrets. Altai III, 832 F.Supp. at 53. Because the Supreme Court of Texas had applied the rule only under limited circumstances, each time emphasizing the special policy considerations warranting application of the rule in the case at hand, the district court "decline[d] to make an...