Services & Software

Criminal courts may not be the place for high-tech cases

Years of difficulties in the Avant/Cadence suit leaves some wondering whether criminal courts are the proper venue for resolving complex business disputes.

It's been a little more than five years since authorities raided the offices of Avant executives, resulting in a felony trade secrets indictment.

Since then, the case has languished in California's Santa Clara County Superior Court, providing little relief for Cadence, the software company accusing Avant of stealing its intellectual property.

On Friday, the prosecution was dealt yet another blow when the judge dismissed Cadence's case on what appears to be a legal technicality. Prosecutors filed an appeal following the ruling and are seeking a second indictment against Gerry Hsu, Avant's chief executive, along with several others.

Questions of guilt and innocence aside, the latest ruling caps years of difficulties for the prosecution, which has been stymied nearly every step of the way by Avant's legal team. The closely watched case has become a flash point in debates about how best to handle high-tech legal clashes, leaving some wondering whether criminal courts are the proper venue for resolving complex business disputes.

"It's frustrating," said Julius Finkelstein, Santa Clara's deputy district attorney handling the case for Cadence. "What's clear is that the court system is not very well prepared for the fast-moving pace of intellectual property."

Such factors have played into the hands of defense lawyers in the case, who cautioned that criminal courts can be a dicey venue for resolving business disputes.

"One has to be very careful about using the criminal courts as a forum for resolving competitive disputes," said Avant attorney Allen Ruby of San Jose, Calif. "Trying to criminalize commercial competition is an enormous risk."

Companies that claim to be victims of intellectual property theft can generally get satisfactory results from the criminal justice system, legal experts say. Prosecutors have the power to search offices, homes and computers for evidence that could result in a quick remedy for the victim.

"In really egregious cases, the criminal justice system can short-circuit a lot of the typical delay one finds in the civil courts," said Daniel Harris, a partner with the law firm Brobeck, Phleger & Harrison in Palo Alto, Calif. "But it tends to be a heavy-handed tactic."

Whether the Avant case will eventually serve as a deterrent to potential wrong-doers or to prosecutors considering criminal trade secrets theft charges remains to be seen.

Trouble started when several executives left Cadence in 1991 to form their own company, then called Arcsys and now known as Avant.

Cadence accused the officers of taking with them trade secrets that gave the fledging company a jump-start in getting a product to market. Cadence and prosecutors also said that three other employees eventually left, taking more source code with them.

Cadence sued Avant for copyright infringement and trade secret thefts in December 1995, one day after Santa Clara County investigators raided Avant's Fremont, Calif., offices. The civil case is being held up on appeal.

Two years later, Finkelstein charged seven former Cadence employees--six of whom worked at Avant--with felony trade secret theft, punishable by up to seven years in prison.

Avant attorney Ruby has filed one motion after another, accusing Cadence of funding the prosecution's case and challenging judges who were assigned to preside over the matter. Ruby didn't prevail on the grounds of his motions, but the case was derailed for some time.

Ruby succeeded with his final motion, forcing Judge Kevin Murphy to dismiss the case on procedural grounds. Ruby contested that the record was not complete because a court reporter did not record all of the prosecutor's comments during the grand jury hearings.

Although a jury's verdict in the case may not come for another few years, the Avant products that were originally at the center of the dispute are no longer on the market. Avant and Cadence remain fierce competitors in the market for software used by microchip makers and other electronics firms, however.

Avant's shares rose 42 percent following the judge's dismissal Friday. By the end of regular trading today, though, Avant's stock was at $14.63, down $3.38. By comparison, Cadence shares traded at $18.38, up $1.56 by the end of regular trading.