Seven Silicon Valley software executives and engineers facing state charges that they stole code from a previous employer to start their own firm surrendered to sheriff's deputies on Tuesday in the latest act of one of the nastiest trade-secrets disputes in high-tech.
All seven suspects, each of whom had bail set at US$100,000 in Santa Clara County (California) Superior Court, are former employees of Cadence Design Systems, the leading manufacturer of software that microprocessor designers use to build complex circuits on tiny silicon chips.
Six of those charged work for Avant Inc., which has become a major player in the same niche. They include Avant president and CEO Gerry Hsu, employees Steven Wuu, Y. Z. Liao, Eric Cho, Leigh Huang, and Eric Cheng. The seventh suspect is Mitch Igusa, who left Cadence in late 1994 after allegedly smuggling out a batch of Cadence secrets he later sold to Avant.
If convicted on the felony charges of conspiracy and theft of trade secrets, filed by the Santa Clara County District Attorney's Office on Friday, each defendant could be sentenced to a maximum of seven years in state prison. Igusa had previously been charged with six felony counts of misappropriating trade secrets in connection with the same investigation.
"The really extraordinary thing about this case is that we have a publicly traded company that appears to have been founded on stolen information," said Santa Clara County Assistant District Attorney Julius Finkelstein.
In a statement, Hsu rejected the charges as "another example of (Cadence's) attempt to misuse the legal system." He added: "We have faith in the legal system and confidently look forward to exoneration"
Finkelstein said the case has nothing to do with Cadence machinations. "Based on our review, this is not simply a business dispute, but a case of outright theft," he said.
The Cadence-Avant dispute goes back six years and includes a long-running civil case in US District Court in San Jose. Last month, the court found that some of Avant's early programs did contain Cadence code, but did not block further sales of the Avant software.
The criminal investigation of Avant began in November 1994 after Cadence notified the district attorney of concerns about several emails Igusa sent the day before he left the company. The size of the emails raised suspicions that they contained proprietary code. After searching Igusa's house, the district attorney charged him with six felony counts of misappropriating trade secrets. He pleaded not guilty to the earlier counts.
The case first came to public attention in December 1995 after Hsu allegedly recruited Cheng from Cadence. Shortly thereafter, the district attorney, the FBI, and local police conducted a high-profile search of Avant's headquarters that sent the company's stock into a nose-dive.
In 1996, however, the year after the Cadence code was allegedly integrated into Avant products, the company boasted a healthy US$106 million in revenue, a 54 percent increase over its 1995 earnings. By comparison, Cadence had sales of US$742 million for the same year.
In the wake of news about the felony charges, Avant's Nasdaq value plummeted from Monday's closing price of US$24.50 to a Tuesday closing price of US$12.50.
