Computer Associates International, Inc. v. Altai, Inc., 918 S.W.2d 453

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

918 S.W.2d 453

Tex.

1996

Check Treatment

*1 ASSOCIATES COMPUTER

INTERNATIONAL, INC.,

Appellant,

ALTAI, INC., Appellee.

No. 94-0433.

Supreme Texas.

Argued Sept.

Concurring Opinion Justice March

Owen

16.003(a)does not Constitu violate Texas tion.

I Amey, developer computer Claude of software, by Computer employed Associ- International, Inc., in ates its Dallas office January During from until his signed employment employment, Arney agreement prohibited which him retain- from ing divulging Computer Associates’ trade January Arney In secrets. left Com- puter accept employment at Associates to Altai, interview, Arney repre- In an Inc. exit proprietary he no sented that retained infor- Computer mation of Associates and would divulge Computer Associates’ trade se- Kahn, Daniels, Stephen D. J. Katherine However, any party. crets to third when Miller, City, Ralph Stephen York New I. Arney Computer cop- left took Associates he Carlin, Dallas, appellant. Cormac for computer ies for of the source code two Braden, DC, Washington, Susan G. Wil- of versions ADAPTER. ADAPTER is an Powers, Austin, Jr., system liam B. operating Rueben Robert- compatibility component son, Goldfarb, DC, CA-SCHEDULER, Washington, ap- Neal for job is a schedul- which pellee. ing program computers. for IBM mainframe

ADAPTER connects CA-SCHEDULER operating systems three ENOCH, Justice, different opinion delivered the computers used on IBM mainframe and en- Rehearing, on Motion for ables to run PHILLIPS, CA-SCHEDULER C.J., GONZALEZ, and operating systems. the IBM ADAPTER HECHT, CORNYN, SPECTOR and group Computer was also used with BAKER, JJ., join. programs Associates’ called the DYNAM is rehearing The motion for overruled. However, separate line. ADAPTER is not a 8, 1995, opinion Our of June is withdrawn product operating capable and is not as an following place. substituted its independent product. Arney Before left ques This case to us on comes certified Associates, Computer developed Altai Ap tions from the Court of United States ZEKE, job scheduling program for IBM peals for the Second Circuit. Assocs. computers which mainframe was similar 'l, Altai, (2d Inc., Int Inc. v. 22 F.3d 32 early Arney CA-SCHEDULER. Cir.1994).1 We are asked to two decide is copied thirty approximately percent of the (1) excep sues: whether the ADAPTER 3.4 source code write OSCAR 16.003(a) tion section the Texas Civil It undisputed Altai. that no one at applies Practice and Remedies Code (other Arney) Arney than knew that secrets; claims for of trade possessed the ADAPTER source code or not, if application whether the to such Amey copied portions of the source two-year period pro claims of the code when he created OSCAR 3.4. OSCAR 16.003(a) vided section contravenes the system 3.4 operating compatibility is Altai’s “open courts” of Article Section component Al- which was used in several of including 13 of the Texas We hold that programs, Constitution. tai’s ZEKE. Like ADAPTER, separate does OSCAR 3.4 not a claim product capable operating to the of trade as an and is not application independent product. August secrets section From 1985 to pendix questions ap- opinion. 1. The certified are included as an Court’s 16.003(a) accrual, of the Texas Civil component as section Atai used OSCAR 8.4 Code establishes computer programs Practice and Remedies of several of injury to of limitations for Associ- statute competed with several of or conversion property another programs. ates’ *3 In this Atai first property of another. 1988, first July Computer In Associates until in 1985. Not 1988 used source code copied and used the that Atai had discovered file Atai its suit. Computer did Associates com in several of its ADAPTER source code Computer did not Associates concedes 1988, Computer puter programs. August In the source code until know about the use of court sued Atai in federal district Associates question is we should 1988. The whether trade and misappropriation for secrets permit discovery exception rule these infringement. Among copyright other circumstances. things, determined the federal district court misap Associates’ Computer action question, we must To answer propriation of trade secrets under Texas law objective of statutes of limita understand by copyright act. preempted the federal purpose of statutes of limitations tions. The Altai, Int’l, Inc., Computer Inc. v. Assocs. within a compel is to the assertion claims (E.D.N.Y.1991). 544, F.Supp. 775 563-66 is the evidence fresh reasonable while Appeals The United States Court of reversed parties witnesses. the minds and and remanded for further consideration of Anderson, 690, Price v. Estate 522 S.W.2d Computer Smith, Associates’ (Tex.1975); v. 417 692 Gaddis S.W.2d Int’l, Computer Inc. v. (Tex.1967). claims. Assocs. 577, “Society’s interest 578 Altai (2d Cir.1992). Inc., 693, 982 F.2d On or repose disputes to have either settled is remand, the district court determined that It is based barred within reasonable time. discovery exception apply rule did not theory uncertainty and on the that the inse Computer and action for Associates’ curity by claims hinder the caused unsettled misappropriation of trade secrets was barred Stores, Safeway Inc. v. flow of commerce.” 16.003(a) by (Tex. Prac section Texas Civil 544, Corp., 710 545 Certainteed S.W.2d Computer 1986). tice Remedies Code. Assocs. exception discovery rule defers The Int'l, Inc., 50, F.Supp. 51- Inc. v. 832 plaintiff action until the accrual of a cause of Altai (E.D.N.Y.1993). Subsequently, 52 the Unit or, diligence, exercising knew reasonable Appeals ed States Court of certified the giving rise to should have known of the facts questions Court. Assocs. Trinity v. of action. River Auth. cause (2d Int’l, Inc., (Tex. v. 22 Cir. Inc. F.3d 32 Consultants, 259, 262 URS 889 S.W.2d 1994). Inc., 1994); Sterling Drug, 787 Moreno v. (Tex.1990). 348, discovery 351

S.W.2d rule, very proves to limit application, II of limitations. exception ed statutes argues that Associates exception, discovery discovery exception rule to the Similar to the rule granted alleged, a claim fraud is we have statute of limitations should where deferring the cause of of trade A claimant the benefit of secrets. formula, pattern, or should trade device action until the claimant discovered secret Hunt, compilation used in have fraud. Ruebeck v. of information which is discovered the or (1943); 167, 738, 739 opportunity 176 S.W.2d presents business Tex. one’s Press, 60, 140 438, Quinn competitors who 135 Tex. advantage to obtain an over (1940). permitted Hyde also claim Corp. or We have do not know use it. Huf 776, deferring ants benefit of fines, cert. to receive the 158 Tex. denied, where of action in cases 3 L.Ed.2d accrual of cause 358 U.S. S.Ct. forming the basis of an were (quoting the facts of ToRts Restatement (1939)). Stonecipher v. misap A Estate § 757 cause of action for concealed. Estate (Tex.1979); Butts, 806, 809 Owen trade accrues when the propriation of secrets Id., 130 Tex. actually King, used. 314 S.W.2d v. trade secret is (1938). that, short, upon “[F]raud we have said: parties at 769. The do contest touches, that, Willis, vitiates whatever Morris v. We note we also relied on House, (1870), fiduciary Tex. 492 limita relationship obligating and ... an attor- begin to ney tions run from the fraud “render full time the and fair disclosure discovered could been facts material to representation.” discovered the client’s party the defrauded 760 S.W.2d at We that “[f]acts exercise of reason stated might ordinarily diligence.” require investigation Stonecipher, able Estate of likely may effect, suspicion Although excite where a fidu- S.W.2d at similar in involved,” ciary relationship exception ab- and deferral sent the the client based on fraud or concealment exist dif attorney “would have to hire a second ferent reasons. Unlike the observe the work of the first.” Id. at 645-46. *4 exception, in deferral the context of fraud or is, fiduciary reality, But the rationale a equitable concealment estoppel. resembles on inherently variation the undiseoverable estops “[F]raudulent concealment defen the presumed pos- element. Fiduciaries are relying dant from the on statute of limita superior knowledge, meaning sess in- the plain tions as an defense [the] affirmative client, jured party, presumed pos- the is Peck, tiffs claim.” v. Borderlon 661 S.W.2d (Tex.1983). sess less information 907, fiduciary. than the 908 Consequently, context, fiduciary it concealment, Unrelated to fraud injury pre- be said that the nature of the is permitted discovery Court has rule ex undiseoverable, sumed to be al- ception in certain limited circumstances. though person fiduciary a duty a owed has cases, glean From unifying these can a responsibility some to ascertain when an in- principle which balancing facilitates those Courseview, jury occurs. Phillips Inc. v. factors that are considered this Court before Co., 397, 197, Petroleum 158 Tex. 312 S.W.2d permitted application has of the (Tex.1957). 205 exception to the statute of limitations. permit We now whether to consider Generally, application permitted has been application of the injury those cases where nature of statute of in misappropriation incurred is undiseoverable and the in light of trade secret unifying cases of the injury objectively evidence is verifiable. (1) principle: injury whether the is inherent- requirement of inherent undiscoverabili (2) ly undiseoverable; and whether evidence ty recognizes excep that the injury objectively of the verifiable. Com- permitted only tion should be in circum puter Associates asserts that could not injured stances where “it is difficult reasonably have theft discovered the of its party negligent learn act or omis years trade secret within two Altai’s after Maverick, sion.” v. Willis 760 S.W.2d Therefore, Computer first actual use. Asso- (Tex.1988); Rinkle, Kelley 645 see 532 argues action ciates cause of was (Tex.1976) (“A person S.W.2d will inherently undiseoverable. It bolsters its ordinarily suspect not reason to by focusing stipula- on contention Altai’s oral by publication he has been defamed tion states that Associates report agency of a credit to a false credit did know or have reason to know of credit....”); until application he makes alleged misappropriation Altai’s within the Hall, (Tex.1972) Hays v. statute of limitations. (“One undergoes vasectomy operation, who a meaning “in- Associates misconstrues the sterile, and then after tests is told he is herently Inherently undiseoverable.” undis- fertile, cannot know that he is still if that be encompasses requirement coverable case, until preg wife either his becomes injury ordinarily the existence of the is not nant or he is shown to fertile further discoverable, though diligence even due has Gaddis, (“It testing.”); is a used. been certainty patient virtual has no innovation, knowledge day following surgery age technological In this in —nor long foreign secrets, for a time property, including thereafter —that a tellectual trade incision.”). object jealously guarded left in commodity. Extensive State, Schalk precautions prevent are taken and elimi also denied, 503 (Tex.Crim.App.1991), the in cert. U.S. misappropriations, nate trade secret (1992) promote rapid L.Ed.2d 425 being to detection tention S.Ct. misappropriation. generally 3 taken to insure (discussing See various measures Mil grim § 13.04[2] secrecy). High employee mobility and criti TRADE ON SECRETS (identifying only forty-three reported out of a in maintaining proprietary cal interest trade secret six-thousand to the secret are endemic terest a trade percent implicat cases —less than one industry. Suspicions computer software —that limitations). some ed the statute While competitor markets when a should abound might not be misappropriations trade secret previously developed product to that similar discovered, fact quickly this isolated does employer after one of the former a former that, cases, reality in most trade alter the begins for the employer’s employees work capable misappropriation generally secret competitor. time allotted for of detection -within the has noted the past, bringing present In the such suits. plaintiffs barring suit “shocking results” case, Arney misappropriated Computer Asso even been discovered. before the by absconding ciates’ source code Gaddis, 581; Hays, See *5 “greenbar” computer paper upon stack of prin- no 414. This rationale offers S.W.2d at printed he left the which the code was when distinguishing cases cipled basis for between out, company. points Computer As Altai applies in which the rule and those which Arney’s theft Associates could have detected logical to conclu- it does not. If carried logs using document control common —a sion, applying the rationale mandates practice among high technology companies exception every discovery rule to thus dependent generally upon trade secrets. See eviscerating whole notion of an absolute Protecting Secrets, Munch, DoRR Trade & “pre- It litigation. to is clear that time bar Patents, Copyrights, Trademarks remedy enough legal alone not clusion of a 1.9-1.17, (1990); §§ at 11-29 The Law and judicial exception to justify a the statute. 3.05[b], § of Business Software limitations, to pre- of primary purpose The 3-17, 4.00-.09, §§ 4-21 at 3-12 to at claims, litigation stale or fraudulent vent of (D.C. 1990); ed., Epstein, Toedt Modern Weaver, kept be in mind.” Robinson v. must Property (1988); 212.1-216 Intellectual (Tex.1977). 18, 20 The 550 S.W.2d Pooley, Trade Secrets: How to PROTECT compli- exception to strict rule is a limited (1982). Your Ideas and Assets of limitations. See ance with the statute Additionally, high live in a we world Auth., Be- Trinity at 262. River 889 S.W.2d mobility employee easy transportability not misappropriation of trade secrets is cause circumstances, of information. these Under action that is undiscov- cause of unexpected employee it is not that a former erable, of the discov- permitting application go competitor for a and that the will work exception no ery rule in these cases would do competitor might thereby acquire trade se permit litigation of stale more than xiii; Munch, Epstein, crets. Dorr & claims. 84-84.1; Seidel, Practi the General What princi- concluding, we note that the Before tioner Know about Trade Secrets Should The ple applied has two elements. Employment Agreements we have 3.01, § at 21- alleged injury be is that the second element (2d 1984). reality ed. This is reflected Gaddis, e.g., objectively verifiable. See requested confidentiality agreement (“[Tjhis peculiar type at 581 given Arney Com and exit interview patient] not [leaving sponge in which is case Vigilance puter Associates. area susceptible prose- to fraudulent particularly particularly required, be trade secrets cution.”). verifiability objective Requiring public cause a trade secret is made all once policy underpinnings of stat- See, that the assures ownership e.g., Luccous v. J.C. is lost. (Tex.1964) balancing the Co., utes of limitations are Kinley met — (“It possibility of fraudulent claims subject stale matter of is self-evident secret.”); injustice. We relied heavi- against individual kept see secret must be trade ly on this in deciding element to extend we must address Associates’ chal- exception lenge to cases of medi- two-year statute misdiagnoses: 16.003(a) cal “Unlike provided by Gaddis Smith section as violat- present there physical exists no ing “open case courts” of Article which evidence in-and-of-itself establishes the 13 the Section Texas It Constitution. does Robinson, negligence person.” of some 550 not. “open provision guarantees The courts” S.W.2d at 21. And afforded, we considered this ele- “meaningful must remedies be ment in at Kelley, legislature least one other See abrogate case. ‘so that the 532 S.W.2d at 949. right Because trade secret to assert a well-established common law claims are not cause of action unless the reason for its undiscoverable, necessary it is not us outweighs litigants’ action constitutional ” question Auth., reach the of whether such misap- right Trinity of redress.’ River propriations may by objective (quoting verified evi- S.W.2d at 261 Texas Ass’n Busi- Bd., dence.2 ness v. Air Texas Control (Tex.1993)). Therefore, litigant Finally, recognize thirty-nine alleging guarantee a violation of this must states and the District of Columbia have abrogation cognizable first show adopted Act, the Uniform Trade Secrets second, common law cause of action and provides a discovery the restriction is arbitrary unreasonable or misap- tolls statute of limitations in against when purpose balanced and basis propriation of trade secret cases. See Unif. Votteler, statute. Sax 6,14 § U.L.A. 462 TRADE SECRETS Act (Tex.1983). (citing Alabama, Alaska, Arizona, laws of Ar- kansas, California, Colorado, Connecticut, traditional rule Texas is that a Delaware, Colombia, Florida, District of cause action accrues and the *6 Hawaii, Idaho, Georgia, Illinois, Indiana, period begins limitations run soon to as as Iowa, Kansas, Louisiana, Kentucky, Maine, injury, regardless the owner suffers some of Maryland, Minnesota, Montana, Mississippi, when the becomes discoverable. Nebraska, Nevada, Auth., Hampshire, Trinity New New River Mexico, Carolina, Dakota, North North permit Okla- discovery exception Failure to a rule homa, Oregon, Island, Carolina, Rhode to abrogate South this traditional rule does Dakota, Utah, Virginia, Washington, South right. assuming common law Id. Even Wisconsin). 16.003(a) Virginia West No legislative state su- section action which court, however, preme yet adopted affects a common law cause of action for discovery exception rule purposes “open analysis, for trade secret applica- of courts” cases as an juris- exercise of its common two-year law tion of a statute of limitations with- Bros., Pilkington diction. See P.L.C. v. out exception rule is not unrea- (BNA) Corp., U.S.P.Q. Guardian Indus. arbitrary against sonable when balanced 300, (E.D.Mich.1986) purpose explained 1986 WL 9876 As we of statute. (holding above, applicability significant purpose determination of of of statutes of exception question prevent litigation rule is a of fed- limitations stale law); eral common Anaconda policy, Co. Metric and fraudulent claims. This combined Tool, (E.D.Pa.1980) F.Supp. with property the nature of trade secret cases). (noting reported Pennsylvania no rights, requires vigilantly an owner to guard We decline to the first. We will not the secret from the world in order to 16.003(a) overlay discovery preserve section rights, application makes exception two-year of trade statute of reasonable un- limitations secret causes action. der the circumstances.

Ill IV Having determined questions that the discov We answer the certified us as (1) exception ery apply does not follows: - - R.V., standard). See S.V. WL [1996 verifiable (Tex.1996) (discussing objectively 112206] 16.003(a) Practice of the Texas Civil section claims does not and Remedies Code performs a task similar program, which secrets; and misappropriation of trade ADAPTER, designated OSCAR to CA’s application of the thirty per copied approximately Arney 3.4. 16.003(a) con- does not provided section comprising code OSCAR cent of the source provision Article “open courts” travene the Id. ADAPTER. source code of 3.4 from the I, 13 of the Texas Constitution. Section Altai Arney, no one at than at 552. Other ADAPTER Arney possessed

knew that code copied he had or that source code APPENDIX From 3.4. Id. at 554. creating OSCAR Appeals United States Court 3.4 August Altai used OSCAR for the Second Circuit computer programs that in several of its Id. competed with CA-SCHEDULER. Docket No. 93-7957 552, 554. International, Computer Associates July CA first learned In late Inc., Plaintiff-Appellant, pro- might copied the ADAPTER Altai confirming its sus- gram. at 554. After Id. -against- copyrights on picions, secured versions CA In Id. 2.1 and 7.0 CA-SCHEDULER. Altai, Inc., Defendant-Appellee. against Altai brought suit August CA Supreme of Texas Certificate to Court court, diversity invoking in federal district (West 1993) 114(a) pursuant Tex.R.App.P. (1988). jurisdiction.2 § See U.S.C. (permitting questions certification of state infringed alleged Altai had CA’s CA controlling prece- law for which there is no misappro- in ADAPTER and had copyright Supreme dent the decisions of the priated trade secrets. CA’s Texas). com- Upon receiving CA’s F.Supp. at 554. January III Arney, Claude F. left al- immediately investigated the plaint, Altai employer copied offices of his of five Arney the Texas legations learned that International, years, Associates portions the ADAPTER code. James (“CA”), computer Williams, who be- developer employee Inc. soft P. of Altai *7 31, 1988, ware, Altai, re- its on go competitor, president work for a came October (“Altai”). Arney portions which OSCAR viewed with Computer Inc. See Assocs. Int’l v. had Altai, Inc., (E.D.N.Y. Arney copied and he devel- had which F.Supp. 553 conducting re- 1991) oped independently. In (“Altai P’), part, in in vacated aff'd view, ADAPTER Arney again consulted the (2d remanded, part, Cir. and 982 F.2d code, nor of Altai’s but neither Williams 1992). left, Arney took with him When he programmers ever examined other computer listings copies source code1 code, away be- which was locked ADAPTER program for versions of known as two CA began rewriting OSCAR. Id. fore Altai (a pro component of ADAPTER another CA CA-SCHEDULER), gram knowing in pro- called how to consulting counsel about After employment agreement of a CA ceed, violation to re- organized operation an Williams signed prohibited Working pri- program. he had re OSCAR write the program, Id. 552-53. Altai marily of such materials. at from a different tention descriptions of various ser- Arney program then undertook to write Williams wrote per- would the rewritten OSCAR first of vices that Altai known as OSCAR. The version computer directly instructions." receives its text of a 1. "Source code” refers to "the literal Altai, Inc., F.2d program's Assocs. Int’l v. [computer] written in a instructions 1992). (2d programming language,” Cir. particular Gates Rub- Indus., F.3d ber v. Bando Chem. Co. FORTRAN, COBAL, corporation principal (10th 1993), its with 2. CAis a Delaware such BA- Cir. as SIC, City, in New York. place business Garden code has been or EDL. Once the source principal corporation, and its completed, “compiled” into Altai is a Texas it is translated or code,” Arlington, See Altai language place of Texas. "object binary business which is "the through F.Supp. at comprised of zeros ones which the and form. Id. governed, exclusively, Williams then instructed Altai’s copying [are] feder- programmers, [copyright] none of whom had al worked on law.” Id. at 565. 3.4, OSCAR appropriate write code perfect Altai did not an appeal from the so, obtain doing those services. pro- damages respect award of with to OSCAR grammers Arney were forbidden to contact 3.4, appealed but CA the denial with relief resulting to refer to OSCAR 3.4. Id. The respect to OSCAR 3.5. See As program designated Upon OSCAR 3.5. Altai, Inc., socs. Int’l F.2d completion, its shipped OSCAR 3.5 to (2d Cir.1992) (“Altai ”). II We affirmed customers, its new provided and also OSCAR ruling district court’s that OSCAR 3.5 did not 3.5 upgrade” as a “free to all customers who infringe ADAPTER, copyright in CA’s id. at purchased had OSCAR 3.4. Id. 714-15, agreed and also with the district trial, govern court After bench Texas law would CA’s district court found (if computer misappropriation that Altai’s trade secret program they OSCAR 3.4 claims law). infringed preempted by component the ADAPTER were federal Id. at preemption, copyrighted computer CA’s 718. As to program we noted if CA’s CA- misappropriation SCHEDULER. at claims an Id. 558. The court involved “extra $364,444 copy awarded CA a element” that was not total of included actual damages right claims and apportioned misappropria rendered the profits copy- on right “qualitatively tion claims claims different” from stemming from 3.4. OSCAR Id. claim, copyright misappropriation determined, at claims 572. The district court also however, preempted. would not be See id. at 716. that OSCAR 3.5 was neither sub- element, beyond such Concluding that stantially copied similar to nor from ADAPT- copying, might ER, mere established on the accordingly CA denied relief on its basis that Altai had constructive notice of copyright regarding claims that version of 3.4, misappropriation respect to OSCAR program. Finally, Altai’s Id. at 561-62. al- 718-19, id. see at or that Altai’s conceded though noting that Texas state law would knowledge of misappropriation when devel govern misappropriation CA’s trade secret oped may have OSCAR 3.5 resulted claim, at id. the district court concluded embodiment of CA therein de trade secrets against CA’s claim Al- spite Altai, preventive measures taken tai preempted by had been Copy- the federal 719-21, id. see at remanded further right Act. Id. 563-66. recognizing While consideration of CA’s that the torts of misappropriation copy- claims. 720-21. right infringement might be distinct some cases, the district court reasoned remand, parties On briefed the trade facts of this the claims down to “boil[ed] secret issues under Texas law. Altai also *8 thing right the same of action for defense, the asserted the in- affirmative first —a of, reproduction unauthorized prepara- presented voked in its answer and also in its on, tion of derivative works memorandum, based ADAPT- post-trial that CA’s claims ER.” Id. at 564. by Because both claims in- applicable were barred the Texas statute work, limitations, a copyrightable volved the district of Texas Civil Practice & Reme- 16.003(a) (Vernon 1986).3 court that “all concerning § concluded claims dies Code Atm. 1274, 1277, sitting (1990). Thus, diversity applies A3. federal court in the S.Ct. 108 L.Ed.2d 443 of choice law rules the Jersey's of forum state. Klaxon New law choice of rules determine Co., 487, Mfg. Co. v. Stentor Elec. 97, 313 U.S. 496- applies. which state's statute of limitations New 1020, 1021-22, 61 S.Ct 85 L.Ed. 1477 Jersey prevalent has abandoned the rule that the (1941). originally brought CA this action in the procedural statute of limitations is a matter and United States District Court for the District of therefore of the forum state’s statute limitations Jersey, by stipu- New whence it was transferred applicable, regardless state's substan- pursu- lation to the Eastern New District of York Inc., Uniroyal, applies. law See tive Heavner v. 1404(a) (1988). I, § ant 28 to U.S.C. See Altai 130, 412, (1973); 63 N.J. 305 A.2d 415-18 War- F.Supp. 775 at 566. Whether such a transfer is Inn, Ltee., Auberge Gray ner v. F.2d Rocks 827 defendant, plaintiff by initiated the or the "the 938, (3d Instead, Cir.1987). Jersey 940-41 New transferee court must follow the choice law applies normally the interest-based test reserved prevailed rules that in the transferor court.” determining for which state’s substantive law Co., 519, 516, v. Ferens John Deere 494 U.S. 110

461 566, law, F.Supp. after Altai, Inc., at Altai 775 v. see Computer Assocs. Int’l See remand, (‘Altai court (E.D.N.Y.1993) upon the further consideration F.Supp. discovery rule in this apply the declined III”). states, pertinent That Texas court The court noted that no case. part: unambiguously applied the had trespass bring person A must suit involving the rule to claims property of to the estate or to the III, at F.Supp. of trade secrets. another, personal property, conversion of Supreme of Texas Court 53. Because the taking personal prop- detaining the [or] cir only rule under limited applied the erty ... not than two of another later spe cumstances, emphasizing the time each day of action years after the the cause warranting applica policy cial considerations accrues. hand, the case at tion of the rule the (now Appeals desig Court of Civil The Texas unprece an to make “decline[d] district court Appeals) applied arti nated the Court expansion rule dented the Statutes, the cle 5526 of the Texas Civil at Id. applying it to the facts of this case.” 16.003, involving § forerunner of to claims however, noted, its inabil court also 54. The See trade secrets. 114(a) certify ity R.App.P. under Texas Corp. In Reynolds-Southwestern v. Dresser Texas, Supreme id. Court this issue dus., (Tex.Civ.App.1969) 53-54, this matter comes and added: “If claim); (applying art. to trade secret see circuit, they of the second attention Plug Spark also Coastal Distrib. Co. v. NGK certify ques appropriate feel Cir.1986) (5th (same) Co., 1033, 1038 779 F.2d Supreme for an tion to the Texas eases). (collecting Id. at disposition of issue.” authoritative law, limitations Under Texas the statute of generally begins tort to run when claims at trial that CA did Altai conceded wrongful injury, regard- act “the effects al- know of Altai’s know or reason to plaintiff learned of such less when Thus, if misappropriation until 1988. leged Inc., injury.” Sterling Drug, Moreno applied in CA’s (Tex.1990). general This timely un- misappropriation claims would be applies accrual unless modified However, district court der Texas law. rule,” which, “discovery applicable, pro- when discovery rule did that because the concluded for a tort vides that wrong- allegedly apply, and because the plaintiff from date the “run[s] action (four years before ful act occurred discovered, or should have in the discovers suit) Arney copying began when CA filed diligence, exercise of reasonable care and 3.4, into ADAPTER codes OSCAR CA’s Maverick, injury.” nature of Willis v. run and CA’s claim statute of limitations had (Tex.1988) (citing Gaddis was barred. (Tex.1967)). Smith, 417 the district appeal, On CA contends that The district court declined to address declining the discov court erred misappropriation claims on merits of CA’s argues ery case. CA that: remand, dismissing as instead them barred Appeals applied the of Civil the Texas Court *9 16.003(a). Although arising § the district the discovery under rule to a claim from Reyn opined misappropriation that CA’s claims of trade secrets court earlier 140; Corp., would be 438 S.W.2d misappropriation of trade secrets olds-Southwestern (2) of Texas precedent Supreme of the Court subject discovery the rule under Texas to 493, of limitations. Bailey, to the Texas statute apply. 578 F.2d have recourse will See Schum v. case, (3d Cir.1978). 408, Co., N.J.Super. acts at issue Langston 495 In this the v. 206 See Seals in Texas and involved the Texas offices 1185, occurred (Ct.App.Div.), 1187-88 502 A.2d certifica- (CA) corporation a and a Texas of Delaware denied, 386, (1986); N.J. 517 A.2d 392 tion circumstances, (Altai). corporation Under these Washington Systems Corp., 260 Maintenance difficulty concluding that New we have little Jersey (Ct.Law N.J.Super. A.2d significant applying no interest in its has Div.1992). limitations, would instead own statute of supports discovery of provision extension the rule in provided tations an inflexible two-year period regardless misappropriation limitations instance because the of discoverability by the of inflicted mal- po trade secrets is difficult practice. Willis, discover, plaintiff tential to see (“This adopted S.W.2d at 645 court has the discovery The to decision extend the discovery to type previ- rule in cases ... of claim to which it which it is ously applied by Supreme been Court of injured party difficult for the to of learn requires Texas eonsider[ation of] omission.”) “careful[] cases); negligent act (collecting opposing considerations,” policy Kelley (3) Supreme presumably Court of Texas Rinkle, (Tex.1976), majority would follow the of vast lead of weighing regarding concerns “the assertion by adopting discovery states rule for id., of claims period,” within reasonable secrets; (4) trade those Texas eases against general justice. considerations of apply discovery do rule are distin particu- of this Resolution issue thus calls for guishable they because involved different sensitivity lar policy to state concerns and policy contexts and considerations from those special expertise in Accordingly, Texas law. by implicated misappropriation claims for the we conclude that this decision best is left See, e.g., of trade secrets. Moreno v. Ster Supreme of Court Texas. Tennimon Cf. Inc., ling Drug, 787 S.W.2d at 354-55 Textron, Inc., Helicopter v. Bell 823 F.2d death); (wrongful Seibert v. General Motors (5th curiam) Cir.1987) (“[I]f (per any court Corp., 853 (Tex.Ct.App.1993) were to hold that (physical injuries). Finally, argues CA also exception seemingly unambiguous to this 16.003(a) any § of construction to bar Legislature, declaration of the Texas they claims before become instance, should be Texas court in the first “open discoverable would contravene the sitting diversity not a federal court in a provision Constitution, ease”) courts” of the Texas 16.003(b)). (discussing § (Vernon 1984), § art. Tex. Const. Accordingly, because CA’s claims raise un- interpreted prohibit has been of statutes significant questions settled and of Texas law require person inju limitations that “a whose ease, 2d control the outcome see immediately ries are not discoverable” to sue 0.27, following § Cir.R. certify ques- “during undiseoverability.” tions of law to Supreme Court of Texas: (Tex. Krusen, Nelson v. 1. Does the 1984). 16.003(a) § misappropria- to claims for tion of trade secrets? (1) responds Reynolds-South- that: western, disposi- not, which is in event not a application If would such law, distinguish- tive period pro- statement Texas claims of the 16.003(a) because, by § “open vided contravene the Reynolds- able unlike this I, § courts” 13 of article Southwestern involved claim fraud that Texas Constitution? overlapped the claim for secrets; (2) trade rule has hereby foregoing certified to the primarily applied been Texas courts to Supreme pursuant Texas Tex. 114(a) R.App.P. fiduciary duty by as the United profes- breaches of licensed ordered Appeals sionals; (3) States Court of for the Second Cir application in other eases has cuit. been limited more undiscovera- this__ wrongs alleged misappropriation

ble than the York, York, day Dated at New New ADAPTER; CA’sfailure April, to discov- of alleged misappropriation er resulted George Lange, III laxity safeguarding from its own its trade Clerk, United States Court *10 points “open secrets. Altai also out that the Appeals for the Second Circuit only courts” constitutional been Carolyn Campbell By:/s/ Clark invoked in Nelson and other Texas cases to Campbell Carolyn Clark specific malpractice Deputy invalidate a medical limi- Chief Clerk undiscoverable, inherently because injury is Justice, OWEN, Concurring opinion mitigating are other considerations there Justice, ABBOTT, joins. The relies on against application. its See id. in its decision. those considerations judgment I I concur of the Court. at 455. opinion separately because the Court’s write make it clear that the test of “inher- does not of a that the owner The Court concludes “objectively

ently verifi- undiscoverable” and guard position in the secret is best trade every not ease. able” is determinative against in the first theft of the information may There be instances where these ele- required to so. Id. at place and should be do present, not ments are but should many recognizes own- The Court be deferred because other considerations. extensive property take ers of intellectual Conversely, will be where the there instances precautions prevent the occurrence running of limitations should be deferred It misappropriation. Id. at 456. theft or injury “inherently not though is even live in a world of acknowledges that we also verifiable”, “objectively undiscoverable” prospect high employee mobility and that fraud, fraudulent such as some cases where is one. Id. misappropriation remote concealment, fiduciary duty special or other further concludes that at 457. The Court implicated. relationships are vigilance in trade is re- the area of secrets ownership of quired, particularly because all two-step The of a in- Court’s formulation public. it is lost once is made trade secret quiry should not be read as the acid test Id. at 457. whenever the invoked. easily provided an This case could injury is example of situation where the I objectively inherently undiscoverable and misap- conclusion that verifiable. The today’s It be inferred from decision could “inherently undiscovera- propriation was if undiscoverable trial, stipulated ble” call. At close verifiable, objectively no and other factors Computer Associates did not know or are to rule will be considered. The misappro- alleged know of the have reason to However, circumstances, apply. in certain limita- priation within the injury may undiscoverable tend to bear this out. Com- tions. facts objectively verifiable, yet there are valid puter employee purloined Associates’ former applying to refrain from the discov- reasons listings. copied He computer source code ery rule. thirty percent these approximately source operating system listings in a case. The code to create This arise trade secret However, compatibility component for Altai. “inherently Court defines undiscoverable” as discoverable, system compatibility compo- ordinarily though operating “not even due functioning capable as a diligence has been used.” 918 S.W.2d 456. nent was not separate product A and could not be marketed company with hundreds or thousands of Rather, it product. Altai used employees competitors may separate as a dozens of its any operation of some of com- keeping track of to facilitate the not have means of posi- programs It these employees puter programs. find was where its former other Associ- misappropriation by competition tions. a former were Would products. After the employee under such circumstances be “ordi- ates’ by Computer narily every Associates discoverable”? Not case. discovered using the com- diligence” employ- brought, suit was Altai ceased require Does such an “due by Computer ponent Associates’ constantly attempt designed er to monitor and re- employee. Altai nevertheless was engineer products of all former verse all system compatibility a new competitors able to create ferret out programs did not use component for its It is the answer is trade secrets? obvious Nevertheless, trade secrets. should Associates’ no. cases, have been though facts indicate that would even the These applied not be in such *11 difficult, impossible, if recognized requiring not ther As- that a to client sociates to every stage lawyer unearth the sim- scrutinize of a case its ply by monitoring competitors’ products. handling its losing malpractice was or risk But, regardless of misappropria- by operation the claim whether limitations would erode in tion of the trade secret lawyer. this case was the between client trust and Id. inherently undiscoverable, Maverick, I apply would not See also Willis v. (Tex.1988)

the (discovery rule because the other fac- 645-46 applied by tors militating against though identified the Court even failure to in include deferring limitations. requiring divorce settlement wife’s consent family

sale apparent home was from the II agreement). face of the application “inherently the undis- Finally, analysis today employed by “objectively analy- coverable” and verifiable” govern not Court should at least some proves involving sis also troublesome cases or cases where fraud fraudulent concealment fiduciary duty special or relationship. other alleged. allega- There have been no such Indeed, even as the Court its two- embraces tions this however. pronged inquiry, struggles rec- that oncile test with our decisions Ill fiduciary arena. The Court asserts we bring clarity, Our Court has labored to simply presume injury inherently must consistency predictability and to our discov- undiscoverable, not, whether it is or in fidu- ery jurisprudence, al- but we have not ciary situations. S.W.2d 456. The ways articulating In been successful. now presumed Court reasons that fiduciaries are unifying what princi- we consider be the superior knowledge have ples, must our we also wrestle with some of only “a variation on the undiseov- prior than those decisions cases other Id. erable element.” at 456. But this cannot fraud, concealment, concerning fraudulent explain previous some of our decisions where fiduciary duty, special relationship. or other running we deferred the of limitations. Neither the rationale nor results in cer- lawyer In eases where been sued tain of our cases can be client, grounded brought “inherently not our we have decisions into line undis- analy- on notion that “objectively was coverable” verifiable” verifiable, objectively undiscoverable or against utilizing or sis. does cut This not concept lawyer pos- Generally, even on the two-pronged inquiry. with the superior knowledge. recog- qualifications above, “inherently sessed We have noted policy “objectively nized that considerations and the fidu- verifiable” undiscoverable” ciary obligation attorney good yardstick owed to a test is a and should be However, require adopted prospectively. client the deferral of the run- we should eases, ning in admitting of limitations some even where be candid when we alleged decisions, negligence actually they was known some of our earlier do up. could have been discovered before the measure statutory period of limitations other- would Witt, (Tex.1977), Weaver wise run. is one mus- such ease. Weaver’s nerves and Hastings, damaged during Sanchez v. 287 cles were a hemorrhoidecto- (Tex.1995), my, we articulated two reasons for and he lost control of his bowels. 561 limitations, deferring though bring against the client did suit even S.W.2d at He fully alleged physician performed operation malpractice. was aware who appeal until Id. years 288. We said the client should almost five later. On judgment against summary not be forced to assert a claim from a in favor of the lawyer litigation lawyer physician, until the in which the we held first that Weaver allegedly negligent proof was had concluded. Id. offered no of fraudulent concealment Otherwise, might required summary judgment proper the client and that However, position. take an inconsistent Id. We fur- held that sum- issue. *12 dis judgment the which barred use the mary proper not as to surance Code1 was Nel discovery covery of- at 923. The only rule because the evidence rule. S.W.2d child bom with Duchenne doctor last date of sons’ first was fered the was the “inherently Id. 919-20. When dystrophy. at If muscular at treatment. Id. 794. undis- time, pregnant a inquiry the became second proper coverable” were discov- Mrs. Nelson cases, sought counseling from genetic ery rule the the Nelsons doctor’s evidence would genetic if summary judg- was a enough Dr. Krusen determine she have been to defeat tests, conducting at After carrier. Id. 920. certainly injury, his ment. Weaver knew of not, couple and the Dr. Krusen said she was following surgery in and he it occurred knew The pregnancy. Id. went forward the body. of his the same area diagnosis that Dr. Krusen’s Nelsons learned Hall, Similarly, Hays v. 488 S.W.2d this child was found was incorrect when (Tex.1972), injury inherently un- the was not just third dystrophy after his have muscular discoverable, applied but the birthday. alleged Id. The Nelsons per- 414. Hall rule. 488 at Dr. testing competent indicated Mrs. would have vasectomy Hays. Id. 413. formed on at genetic at 919. Nelson was a carrier. See id. pregnant his Hays learned wife was fourteen in say injury cannot was We therefore Hall months afterwards. Id. Dr. tested herently undiseoverable. pregnancy, Hays both and after this before also Nelson v. Krusen fails meet Hays explana- and told he was sterile. Hall’s apply if prong of the test in Altai we second Hays’s pregnancy tion of live Mrs. was that today, the rationale another case decided sperm trapped Hays’s cells had been in Mr. — - (Tex.1996). R.V., v. S.V. vasectomy seminal tract above the incision. misdiagnosis Nelson v. Krusen was medical Hays pregnant yet again, Id. Mrs. became expert testimony to requiring establish test, Dr. Hall conducted still another Nelson, at 919- negligence. again informing Hays that he was sterile. R.V., misdiag- medical 20. Under S.V. Hays years filed suit almost after three “objectively not nosis would be verifiable”. operation, and trial his court sustained at with one of deci- Nelson is also odds our special exceptions Dr. Hall’s and dismissed Weaver, it, preceded sions that Robinson case based limitations. Id. We held (Tex.1977) (misdiagnosis of 550 S.W.2d 18 vasectomy that one who has a and is told disc). in Rob- location of herniated We held sterile, after tests that he is cannot know does inson that the not he still fertile until either his wife misdiagnosis in eases of medical because pregnant becomes or he is shown be fer- physical there is no evidence that in and However, testing. tile Id. at 414. further negligence. itself establishes testing easily competent have could revealed 22. vasectomy whether was well successful Moreover, period. point consis-

within limitations The is that we have been Hays every pregnant two of our decisions. Mrs. became within the tent each one year opportunity inject period. 413. The take this Id. at We should area, injury consistency was not into undiseoverable. reasonably possible, but also to We nevertheless remanded the ease for trial the extent Hays recognize explicitly that the rationale of some and determination of date discov- fit concerning facts our earlier decisions does not within ered true the failure analysis today operation or date in Altai. he should articulated discovered its failure in the exercise of ordi- two-part inquiry set in Altai is not out nary diligence. Id. care and fraud, appropriate in where some cases (Tex. concealment, Krusen, fiduciary duty, fraudulent

In Nelson v. 678 S.W.2d 918 1984), special relationship implicated. undis- some other Yet, “inherently undiscovera- we held unconstitutional In other cases the coverable. 5.82, ble, objectively analysis 4 of In verifiable” should application of article section R.S., 41.03, R.S., Leg., § § Leg., ch. 1. Acts 64th ch. 65th 864, 865-66, repealed by Acts Tex.Gen.Laws Tex.Gen.Laws *13 then, inquiry. the threshold Even the dis-

covery because of other

countervailing considerations. For fore- reasons,

going I judgment concur in the

this case. BRIMAGE, Jr., Appellant,

Richard Texas, Appellee.

The STATE of

No. 70105. Appeals Texas,

Court of Criminal

En Banc.

Sept. 1994.

Opinion Rehearing after Grant of

Jan.

Rehearing Denied Feb.