Supreme Court's Refuses to Apply
"Discovery Rule" Exception to
Computer Programs Trade Secrets

by Donald Ray Burger
Attorney at Law

Claude Arney, a developer of computer software, was employed by Computer Associates International from 1978 to January 1984. Arney had signed an employment agreement that prohibited him from retaining or divulging CAI's trade secrets. His former employeralleged that when he left, he took copies of the source codes for a job scheduling program for IBM mainframes. The former employer contended that he went to work to Altai and, unknown to anyone at CAI or Altai, used about 30% of a CAI source code for an Altai product.

CAI said it first discovered this in July of 1988. They sued Altai in August of 1988 in U.S. District Court. A certified question was sent to the Texas Supreme Court. They were asked if the discovery rule applied under Texas law to a trade secrets case. They responded in Computer Associates Intern. v. Altai, 918 S.W.2d 453 (Tex. 1994).

The limitations period within which one must bring a lawsuit for theft of trade secrets is two years. Altai used the source code in 1985. Unless the "discovery rule" applies, CAI waited too long to sue, even though they sued within a month of discovering the theft.

The discovery rule is a device courts use to get around statutes of limitations. The object of statutes of limitations is to make plaintiffs bring their claims within a time when the evidence is fresh in the minds of the parties and witnesses. The discovery rule defers accrual of the cause of action until the plaintiff knew or, exercising reasonable diligence, should have known, of the facts giving rise to the cause of action.

The limitations period is tolled in cases where the defendant hides his wrong by the use of fraud or concealment. It is also tolled if (1) the nature of the injury is inherently undiscoverable and (2) the evidence of injury is objectively verifiable.

The Court notes, "In this age of technological innovation, intellectual property, including trade secrets, is a jealously guarded commodity." The Court concludes that in most cases the misappropriations are capable of detection within the limitations period.

The Court faults CAI for failing to document the theft by implementation of "document control logs." Also, the Court says that the high employee mobility in the computer industry means "suspicions should abound when a competitor markets a product similar to that previously developed by a former employer after one of the former employer's employees begins to work for the competitor."

The court notes that 39 states have adopted the Uniform Trade Secrets Act, which provides a discovery rule exception that tolls limitations in misappropriation of trade secret cases. Texas has not adopted this act and the Court refuses to adopt the discovery rule in an exercise of its common law jurisdiction.

Thus, the Texas Supreme Court says you should know your secrets are valuable. You should take steps to protect them and you should be suspicious that your secrets have been stolen if one of your many employees goes to work for a competitor and that competitor comes out with a product similar to yours. And if you discover the theft of your trade secrets more than two years after your cause of action arises, too bad.

Written by Donald Ray Burger, Attorney at Law
Last revised: May 29, 1996

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