Cadence sues Avant! Corp., formerly known as Arcsys, Inc., for theft of trade secrets, copyright infringement, and conspiracy

Business Wire, Dec 7, 1995

SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 7, 1995--Following an extensive investigation by Cadence Design Systems, Inc. (NYSE: CDN), the worldwide leader in electronic design automation (EDA), Cadence today announced it has filed a complaint against Avant! Corp. (Nasdaq: AVNT), formerly known as ArcSys, Inc., and four individuals for misappropriation of trade secrets, copyright infringement, conspiracy, and other illegalities.

Cadence filed the complaint, No. C-95 20828, in U.S. District Court for the Northern District of California, San Jose, on Wednesday, one day after the Computer Crime/Hi Tech Unit of the Santa Clara County District Attorney's Office conducted a search and seizure at Avant!'s Sunnyvale, Calif., headquarters pursuant to a warrant.

Late Wednesday, U.S. District Court Judge William A. Ingram issued a Temporary Restraining Order to prevent the defendants from modifying or destroying any copy of computer code for any version of Avant!'s ArcCell products, and ordering the defendants to notify Cadence within 24 hours of the location of all off-site storage facilities and all off-site copies of Avant! source code or object code.

Cadence supplies software and services widely used in the design of semiconductors and other electronic products. Avant!, recently formed by the merger of ArcSys, Inc. and Integrated Silicon Systems, Inc. (ISS), is also a supplier of EDA software. The conduct at issue involves only the former ArcSys, its employees, and a "consultant" whom Cadence believes has been secretly working for Avant!.

"We believe we have incontrovertible evidence that Avant! is a company built and sustained with intellectual property stolen from Cadence," said Joseph B. Costello, president and CEO of Cadence. "Our suit alleges that Avant! and the individual defendants stole Cadence source code as part of a conspiracy to unlawfully gain immediate business advantage rather than compete fairly through legitimate means and hard work."

The individual defendants named in the complaint include Avant! Chairman and CEO Gerald "Gerry" Hsu, Mitsuru "Mitch" Igusa, Chih-Liang "Eric" Cheng, and Opher Segev, all of whom are former Cadence employees. Defendant Igusa had previously been charged with six felony counts of misappropriation of Cadence trade secrets.

Filed along with the complaint is a declaration from a leading semiconductor vendor, who is a customer of both Cadence and Avant!, and who independently compared Cadence's commercially available Cell3 Ensemble product with a yet-to-be-released ArcSys product, ArcCell XO, which is still in "beta" testing.

The customer found more than 4,000 strings (a sequence of alphanumeric (ASCII) characters) that matched between the two products, incorrect English grammar repeated exactly the same way in both products, and strings that were similar, but were modified in such a way to make them appear unique.

The vendor's evaluation is consistent with the findings of John Navas, an outside technical expert retained by Cadence, who examined Avant!'s commercially released ArcCell product and concluded: "From all the evidence that I have examined to date, my opinion is that there is an extremely strong presumption of substantial Source Code copying. (In my extensive experience in software theft lawsuits I have not seen a stronger presumption without access to Source Code.)"

Cadence's complaint includes the following allegations, among others:

-- ArcSys's ArcCell product, which represented approximately

90 percent of ArcSys's total pre-merger revenues, contains

computer code directly copied from Cadence's place-and-route

source code. There were also additional examples of stolen

Cadence source code where modifications had been made in an

apparent attempt to conceal the copying before it was used

in ArcCell. (Source code is proprietary computer code that makes

software programs run.)

-- At least two current Avant! employees (defendants Cheng and

Segev) and a third "consultant" (defendant Igusa), all formerly

employed by Cadence, each secretly made and removed copies of

Cadence's proprietary place-and-route software, including, but

not limited to, critical source-code modules of Cell Ensemble

and Cell3 Ensemble, namely FRoute, QPlace, and VSize, just

before each left Cadence.

-- In November 1994, shortly after Igusa resigned from Cadence

and after an internal investigation indicated unusually

large Internet file transfers by Igusa, members of the Santa

Clara County District Attorney's Office conducted a search of

Igusa's home. They found proprietary Cadence source code,

which had been stripped of Cadence's trademark and copyright

notices and was in the process of being further modified.

-- Months after he was found to be in possession of stolen

Cadence trade secrets, Igusa ceased operating under the name

Igusa Consulting and created a company with the fictitious

business name "K2 Design Services" (see discussion of the "K

Team" below), which he began operating out of an office located

one block from ArcSys. As recently as October 1995, Igusa visited