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Stepping Into A Mind Field

A criminal trade secrets case in Silicon Valley is heating up the debate about how to enforce intellectual property laws without stifling innovation


SAN JOSE — One day in late 1994, the police swept down upon the Silicon Valley home of a software engineer named Mitsuru "Mitch" Igusa and carted off a computer and several floppy disks they found inside.

The reverberations from that raid are still echoing throughout this capital of high technology. Data embedded on the disks, say Santa Clara County prosecutors, amounted to hard evidence that Igusa was planning to turn over secret software program code from his ex-employer, Cadence Design Systems, to Avant! Corp.--a firm run by former Cadence employees that Igusa was allegedly planning to join.

That assertion is at the center of one of the hottest criminal cases in recent Silicon Valley history. For on April 18, the Santa Clara district attorney filed conspiracy and theft charges against Igusa, Avant! and six Avant! executives, including Chairman and Chief Executive Gerald Hsu and three Avant! founders.

The news hit the industry like a pistol shot.

The prosecutors' complaint read like a modern-day spy story, replete with secret meetings, laundered cash payments and furtive attempts at a cover-up.


Avant! (pronounced "Avanti") is a highly successful developer of "place and route" software, which helps chip makers design microprocessors. Since its founding in 1991, the company has steadily eroded Cadence's dominant share of the place-and-route market. But now analysts are wondering how long the company can survive under its legal cloud: On the day of the charges, Avant!'s stock dropped by about 50%, instantly wiping out about $230 million in market capitalization.

The company and all the other defendants, who were released on bail, have strenuously denied the charges. As Hsu last week told a gathering of high-tech industry analysts: "The charges are false, period. We are not doing anything illegal, and we intend to win in the court."

Hsu contended that the case derives from Avant!'s success in beating Cadence with a superior product line.

"Our products are far better than Cadence's . . . and that's why we will win in the marketplace," he said.

Meanwhile, the charges have opened a debate over the technology industry's newly aggressive approach to protecting its trade secrets--and raised further questions about whether criminal authorities should be treading in an area traditionally handled in the civil courts.

Of course, battles over intellectual property have been around as long as there has been technology to commercialize. As far back as the 1870s, Thomas Edison and Alexander Graham Bell waged a patent war over the invention of the telephone (each ended up with rights to part of the technology).

But there is no question that high-tech firms have lately been waging these legal battles with greater ferocity. The reasons are obvious: Competitive advantages in the fast-moving industry have ever-shorter half-lives, and proprietary technology is growing more expensive to develop and exploit than ever before.

In the last few weeks alone, charges of trade secret theft have been lodged against business rivals by NetCom Online Services and Symantec (itself the defendant in a celebrated 1992 case). As recently as Wednesday, Xerox charged in a lawsuit that U.S. Robotics stole its handwriting-recognition technology for use in its popular Pilot electronic organizer.

And companies today are much more willing to turn over cases to the criminal authorities.

"We are getting more referrals and investigating more," says Julius L. Finkelstein, the assistant district attorney in Santa Clara who brought the Avant! charges.

Although criminal trade secret cases are not entirely novel, corporations have in the past shied away from turning to prosecutors to help settle their competitors' hash. Whereas most trade secret cases are principally about money, the stakes are much higher in criminal court and winning a victory is chancier.

Now, however, the criminal laws are more welcoming to trade secret cases than ever before. New federal and California statutes significantly broaden the definition of protected trade secrets to include not only the traditional categories of scientific or technical information, but also a wide range of business data, including marketing plans and even Rolodex files. The federal law imposes heavy penalties of up to $500,000 and 10 years in jail for individuals found guilty of domestic trade secret theft.

Top law enforcement officials have publicly encouraged their underlings to get on the bandwagon. FBI Director Louis Freeh has publicly cited the threat to U.S. business from industrial espionage, foreign and domestic. And Atty. Gen. Janet Reno has informed federal prosecutors that the government expects them to play a role in prosecuting high-tech crimes.


"Someone seems to think these cases should be prosecuted, because Congress has made [trade secret theft] a crime," says Leo Cunningham, a former assistant U.S. attorney in Silicon Valley now in private practice.

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