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

• Decision Date: 22 September 1994
• Docket Number: No. 94-0433,94-0433
• Citation: 918 S.W.2d 453
• Parties: 11 IER Cases 923, 39 Tex. Sup. Ct. J. 422 COMPUTER ASSOCIATES INTERNATIONAL, INC., Appellant, v. ALTAI, INC., Appellee.
• Court: Texas Supreme Court

Page 453

918 S.W.2d 453

11 IER Cases 923, 39 Tex. Sup. Ct. J. 422

COMPUTER ASSOCIATES INTERNATIONAL, INC., Appellant, v. ALTAI, INC., Appellee.

No. 94-0433.

Supreme Court of Texas.

Argued Sept. 22, 1994.

Concurring Opinion of Justice Owen March 14, 1996.

Stephen D. Kahn, Katherine J. Daniels, New York City, Ralph I. Miller, Stephen Cormac Carlin, Dallas, for appellant.

Susan G. Braden, Washington, DC, William Powers, Jr., Austin, Rueben B. Robertson, Neal Goldfarb, Washington, DC, for appellee.

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 Our opinion of June 8, 1995, is withdrawn and the following is substituted in its place.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 Arney, 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 Arney 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 1988, Altai used OSCAR 3.4 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 Altai had copied and used the ADAPTER source code in several of its computer programs. In August 1988, Computer Associates sued Altai 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, Altai first used the source code in 1985. Not until 1988 did Computer Associates file its suit. Altai 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). We have also permitted claimants to receive the benefit of deferring the accrual of a cause of action in cases where the facts forming the basis of an injury were concealed. Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex.1979); Owen v. King, 130 Tex. 614, 111 S.W.2d 695, 697 (1938). In short, we have said: "[F]raud vitiates whatever it touches, Morris v. House, 32 Tex. 492 (1870), and ... limitations begin to run from the time the fraud is discovered or could have been discovered by the defrauded party by exercise of reasonable diligence." Estate of Stonecipher, 591 S.W.2d at 809. Although similar in effect, the discovery rule exception and deferral based on fraud or concealment exist for different reasons. Unlike the discovery rule exception, deferral in the context of fraud or concealment resembles equitable estoppel. "[F]raudulent concealment estops the defendant from relying on the statute of limitations as an affirmative defense to [the] plaintiff's claim." Borderlon v. Peck, 661 S.W.2d 907, 908 (Tex.1983).

Unrelated to fraud or concealment, this Court has permitted the discovery rule exception in certain limited circumstances. From these cases, we can glean a unifying principle which facilitates balancing those factors that are considered before this Court has permitted application of the discovery rule exception to the statute of limitations. Generally, application has been permitted in those cases where the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable. The requirement of inherent undiscoverability recognizes that the discovery rule exception should be permitted only in circumstances where "it is difficult for the injured party to learn of the negligent act or omission." Willis v. Maverick, 760 S.W.2d 642, 645 (Tex.1988); see Kelley v. Rinkle, 532 S.W.2d 947, 949 (Tex.1976) ("A person will not ordinarily have any reason to suspect that he has been defamed by the publication of a false credit report to a credit agency until he makes application for credit...."); Hays v. Hall, 488 S.W.2d 412, 414 (Tex.1972) ("One who undergoes a vasectomy operation, and then after tests is told that he is sterile, cannot know that he is still fertile, if that be the case, until either his wife becomes pregnant or he is shown to be fertile by further testing."); Gaddis, 417 S.W.2d at 580 ("It is a virtual certainty that the patient has no knowledge on the day following surgery--nor...