Avant loses ground in legal battle

Shares of Avant tumbled more than 12 percent this morning, following a federal appeals court ruling that forbid the company from selling its older-version software.

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Shares of
Avant (AVNT) tumbled 9 percent in trading today, following a federal appeals court ruling that forbid the company from selling its older-version software and may pave the way for a similar ruling on its flagship product.

Avant shares fell as low as 16.3 percent under heavy volume before ending the day at 30--down 3 points from yesterday.

The Ninth U.S. Circuit Court of Appeals yesterday reversed part of a March ruling in which a lower court refused to issue a preliminary injunction forbidding Avant from selling the products.

This gives Cadence Design Systems (CDN) another shot at preventing its arch-rival Avant from selling its place and route software, called Aquarius.

The lower court ruling held that Avant used some of Cadence's code in its earlier products and that Cadence was likely to prove at trial that Avant's efforts to strip the code from Aquarius were inadequate.

But the lower court judge, U.S. District Court Judge Ronald Whyte in San Jose, refused to issue a preliminary injunction enjoining Avant from selling the earlier products, known as ArcCell and ArcCell XO, or Aquarius. Such a ruling, he reasoned, would cripple Avant.

A three-judge panel yesterday reversed that holding, saying it contradicted established law.

"The district court appears to have been strongly influenced by the fact that an injunction would be devastating to Avant's business, which we hold to be error warranting reversal of the district Court's decision," the judges wrote, according to a copy of the ruling. "If the Aquarius software infringes Cadence's copyright, the district court should have entered an order preliminarily enjoining Avant from selling the software."

Avant and Cadence develop routing-tools software that allows electrical engineers to create and test chip designs. This software also is used to automate the design of integrated circuits, or microchips.

The appeals court directed the lower court to issue a preliminary injunction forbidding Avant from selling the ArcCell products, but stopped short of enjoining the company's flagship Aquarius product. Instead, it sent the question back to the lower court to decide. If the judge determines that Aquarius infringes Cadence's copyrights, he will be forced to issue the injunction, an attorney for Cadence told NEWS.COM.

"We have watched Avant's PR machine put a spin on what's been going on for a long time," said Jeffrey Chanin, an attorney for Cadence. "It's time for people to see that that's at an end, and this decision makes that clear."

Given Whyte's earlier ruling that Avant's methods for stripping out Cadence code from Aquarius were inadequate, Chanin added, the judge is likely to enjoin the product following today's ruling.

But an attorney for Avant disputed that assertion.

"We have already presented the court with expert analysis that the Aquarius code does not infringe Cadence's copyrights," said George Riley, an attorney representing Avant. "If Cadence had been able to show that the Aquarius source code actually infringes Cadence's copyrights, Judge Whyte would have made such a finding, but he didn't."

The two companies have been locked in a bitter struggle since early 1994. Cadence alleged that a company executive misappropriated trade secrets when he left for Avant. The two companies worked out a settlement, but the dispute resurfaced a year later when more high-ranking Cadence employees left for Avant.

In April, Santa Clara County prosecutors filed felony charges against six Avant executives for trade-secret misappropriation. After the charges were filed, Whyte stayed Cadence's civil case pending the outcome of the criminal case.