What do you think should happen in Avant! case?

Avant! Corp., its chairman, and six current or former employees pleaded no contest recently to charges in a trade-secrets case. The deal in the five-year-old case put an end to a criminal trial in which the defendants were accused of stealing place-and-route software code from Cadence Design Systems and using it to build a competing router.

Avant! entered pleas of no contest to conspiracy to misappropriate trade secrets and to securities fraud. These no contest pleas arise from Avant!'s use of certain Cadence Symbad/DFII database code in the development of Avant's first generation ArcCell place and route products, as well as a design size optimization software program called DSO. Avant! stopped licensing or supporting these products in mid-1996. Since then, Avant! has expanded through acquisitions, picking up a large set of EDA tools that have nothing to do with Cadence.

Under an arrangement announced by the Santa Clara County District Attorney's office, the defendants will pay a total of $35 million in fines and five defendants will likely receive jail time. A hearing to determine how much restitution Avant! should pay Cadence is scheduled for sometime in June.

At the hearing, Avant! is expected to argue that it should pay what the stolen code was worth, while Cadence will seek to recover what it believes is lost profits. The judge in the case, Conrad Rushing, could seek to make an example of Avant! and fine the company so much that it would bankrupt the company. He could also seek to protect Avant! users, who will be placed in a difficult position if the company is put out of business.

Who is Avant! ?

According to the company, they develop, market, and support IC design automation software solutions (from system definition to mask synthesis) for the rapid design of multimillion gate products. These ICs power consumer electronics, Internet infrastructure, wireless, telecommunications, and automotive products. The company provides physical foundation intellectual property (IP) libraries for IC design and provides a suite of software for IC design, process simulation, device modeling, and mask synthesis. They are global in reach and have 65 offices in 18 countries.

Avant! said that putting the matter to rest once and for all was the right thing to do. The company no longer sells the product that gave rise to this dispute, so this decision will have no impact on the company's current product line. A company spokesperson also said that Avant! has substantial financial reserves to pay the fines and maintain the company's fundamental strength.

The San Jose Mercury News is calling it "the most brazen example of intellectual property theft to ever hit the tech industry." Julius Finkelstein, the deputy district attorney who persisted in his pursuit of justice, told a grand jury last year: "Avant!'s entire existence is a fraud."

Dan Gillmor of the San Jose Mercury News says that unless Avant! is utterly decimated by the civil litigation, the great majority of its employees—the honest ones who did not commit crimes—will keep their jobs. It seems likely that most would be retained by any company that bought their assets. But is decimating the company too much? Mr. Gillmor goes on to ask: Where does justice end? Where does vengeance begin? And what acts are sufficiently egregious as to warrant a corporate death penalty?

In an interview by Michael Santarini, EE Times May 22, 2001 Joe Costello, Cadence's chief executive at the time who was embroiled in a market-share battle with up-and-coming Avant!, said, "If you look at the $35 million Avant! has to pay and the small jail time, the fine doesn't really fit the crime. If this had been a case against a group conspiring to steal $35 million worth of automobiles, there is no way the defendants would have gotten off that easy." But the culpable parties are going to jail and could spend as much as six years behind bars.

Avant!'s lead attorney Dan Bookin said, "This is a business dispute between two companies that should be resolved in the civil courts, not criminal court."

Recent court orders banned two obsolete Avant! products, ArcCell and Aquarius, that were found to contain Cadence Design Systems source code. Those civil court rulings made no determination of criminal activity, leaving users free to ignore the question of how the disputed code got there. But now top Avant! executives pleaded no contest to charges of conspiracy, trade-secret theft, concealing stolen property and securities fraud. While no one explicitly admitted guilt, the pleas and jail sentences strongly imply that there was, in fact, a high-level conspiracy to steal Cadence trade secrets in order to launch Avant!'s first products.

And just to muddy the waters more, Avant! was recently granted patent number 6,219,821 for "Computer systems and methods for verifying representations of a circuit design." This innovation protects "Design VERIFYer" technology that enables rapid comparison of two distinct but possibly equivalent representations of a circuit design such as those used in a system-on-a-chip. "Design VERIFYer" plays an increasingly important role in Avant!'s Milkyway-based, SinglePass-SoC design automation flow for ultra deep submicron (UDSM) technology.

You be the judge

It's easy to sit in judgment of someone else and pass a harsh sentence—especially if you are not affected by the result. So here's your challenge; Try to think like presiding judge Conrad Rushing and weigh all the evidence (as you know it) and look at the ramifications of your decision.

The culpable parties pled guilty and will be punished with fines (including a $27 million fine against the company) and/or jail time. The court also wants Avant! to set aside $10 million for possible restitution. The company not only has a restitution hearing to go through but a civil suit as well in which Cadence is seeking damages of $400 million or more. With compensatory damages it could be multiples of that. It's this stage of the hearings that could obviously be the death knell for the company.

You're the judge and you must weigh facts and mete out justice according to the crime. Observers have said that half of all place-and-route users are Avant! customers. A $400 million judgment against the company will bankrupt them, allowing a Cadence monopoly in placement and routing. As judge, do you allow competition to disappear because of your ruling? Is this strictly a moral issue? A lot of companies will be affected simply because they use Avant!'s products.

Indeed, users would have to scrap existing and planned products if they had to get rid of Avant! tools as a result of the court settlement. Users of the tools state that it takes six months to a year to qualify a new tool and that loss of time could put them out of business or seriously jeopardize their competitive position.

Should you as judge, allow a punishment that would deal a suffocating blow to not only the company but possibly a large segment of the EDA industry? Does it matter? If, as a result of your decision, Avant! is put out of business, will other companies suffer needlessly and even go out of business? Does it matter? Will other EDA vendors simply buy out the remains of Avant! and who gets the proceeds - any golden parachutes? Will the ex-Avant! workers be hired by the industry? Does that matter?

There can be little argument that Avant!'s image is badly tarnished. In 1997, the company did more than $30 million in business, but this dropped to $16.8 million in '98, and $14.2 million in 1999, according to Gartner Dataquest figures. You could surmise that the court case had this direct effect on their earnings. To survive, the company must continue to offer cutting edge tools in the face of increasing competition from Cadence, Synopsys, Magma and Monterey. To survive, Avant! must convince the court to levy restitution it can afford to pay.

The other side of judgment must also be addressed. If you as judge don't send a strong message with harsh penalties to would be thieves of IP then it could be open season on the IP of other companies by national as well as international conspirators.

So now it's your turn to be judge. Do you:

• Make sure that an example is made of the perpetrators and punish them and the company so harshly that it will likely put them out of business. This is after all, an ethical as well as a business issue and must be punished accordingly.
• Punish Avant! for its transgressions but limit the restitution and civil fines to an amount that hurts but will allow them to continue in business.
• The $35 million in fines and jail time is enough -- no more is needed.
• Lower the fines already levied -- they were too extreme. It is causing undue suffering.
• Hey, this is business -- let the two companies work it out.

Avant! Fines

Avant! Corp. announced that it agreed to pay a fine of $27,000,000, and to pay restitution in an amount to be determined by the Court. The Court directed Avant! to place $10 million into escrow for possible payment in restitution.

In addition to the plea by Avant!, the following current and former employees of Avant! resolved the charges against them in the following manner:

• CEO Gerry Hsu pleaded no contest to conspiracy to misappropriate trade secrets, failure to return stolen property, and securities fraud. The securities charge is a misdemeanor and the other charges will be reduced to misdemeanors in the next few months. Hsu agreed to pay a $2,700,000 fine.
• Current and former Avant! employees Leigh Huang, Y.Z. Liao, and Eric Cho pleaded no contest to trade secret conspiracy and securities fraud. Those convictions will be reduced to misdemeanors in the future. Huang, Liao and Cho agreed to pay fines of $108,000: $2,700,000: and $108,000: respectively. Liao and Cho could serve up to one year in county jail.
• Avant! employee Stephen Wuu pleaded no contest to trade secret misappropriation and securities fraud, which will be reduced to misdemeanors at some time in the future. Wuu agreed to pay a $2,700,000 fine and could be sentenced to between 16 and 24 months in prison.
• Avant! employee Eric Cheng pleaded no contest to trade secret misappropriation. Cheng agreed to pay a $27,000 fine and could serve one year in county jail.
• All charges were dismissed against former Avant! executive Mike Tsai.
• As part of the settlement, the company also agreed to pay additional fines assessed against current and former Avant! employees in the amount of approximately $8.3 million.

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