SAN JOSE, Calif. Avanti Corp. executives may have put an end to their long-running criminal case by pleading no contest to an assortment of charges Tuesday (May 22), but the company's financial woes may just be beginning. Cadence Design Systems Inc. will seek hundreds of millions of dollars in restitution and will seek a permanent injunction against Avanti's flagship Apollo product, according to Smith McKeithen, Cadence vice president and general counsel.
In the criminal case, a June 4 hearing has been set to determine how much Avanti should pay Cadence for losses it may have suffered as a result of Avanti's now acknowledged misappropriation of Cadence source code. While coming up with an amount is not a simple matter, McKeithen said he expects it to be in the "hundreds of millions of dollars."
Additionally, once the criminal case is completed, Cadence's long-delayed civil case again st Avanti will commence. Here, McKeithen said, Cadence may be seeking more than a billion dollars in exemplary, or punitive, damages over and above direct damages. And he said that Cadence will "absolutely" seek a permanent injunction against the Apollo placement and routing system, on the grounds that it contains Cadence trade secrets.
McKeithen acknowledged, however, that the civil case will "easily" go into the next year and could last even longer. By then, Avanti may well have replaced Apollo installations with its next-generation Astro product, announced earlier this year.
Meanwhile, McKeithen said, Cadence is pleased with the outcome of the criminal trial even though Gerry Hsu, Avanti president and chief executive officer, escaped a prison sentence. "We view this as an excellent outcome for the people," McKeithen said. "The fine assessed against Avanti was the maximum allowable by statute, and these are felony counts."
McKeithen said that Cadence had no direct involvement in the crim inal case or in the apparent plea bargaining that resulted in the no-contest pleas.
McKeithen said the court will be treading "uncharted ground" when it tries to determine how much restitution is due Cadence. "In a normal criminal case, if someone steals a car, you look at the Blue Book value for it. It's fairly straightforward. But here, we need to understand from the judge what he wants presented."
A figure in the hundreds of millions, McKeithen said, is justified, "if you look at our economic downside as a result of their theft of our code and trade secrets." Cadence was expecting to ask for a similar figure in direct damages in its civil case.
Julius Finkelstein, deputy district attorney for Santa Clara County, said that court-ordered restitution for Cadence's lost profits could be very large. But, he said, "they couldn't recover twice, so it would be an offset for anything they got in the civil case. You only get damages once."
"As a practical matter I assume that if the amount of damag es were large enough, it might not be in Cadence's economic interest to continue to pursue the civil case," Finkelstein said.
Indeed, some analysts have speculated that a large enough judgment could cripple or bankrupt Avanti. But as of now, Cadence is planning to renew the civil case.
The civil case has basically been on hold because defendants, who were also facing criminal charges, invoked the Fifth Amendment, which protects defendants from self-incrimination. Once restitution and sentencing are out of the way, McKeithen said, Cadence can get the civil case going again and "start to take discovery" about alleged source-code and trade secret theft.
"We'll begin to discover, with a lot of granularity, if people tell the truth about what occurred," he said. "Then we'll put together our case based on copyright infringement and trade secret theft."
Courts have already determined that ArcCell and Aquarius violated Cadence copyrights through literal copying of source code. What's going to be to ugher to prove is theft of Cadence "trade secrets," which Avanti claims includes algorithms available in the public domain.
"My belief is that direct lines of code have probably been stripped out by now. But my belief is that our trade secrets are still in Avanti products," McKeithen said. This includes, he said, Cadence's DSO (Design Size Optimization) technology and some of its routing algorithms.
Thus, McKeithen said, Cadence expects to go before a jury and ask for a permanent injunction against Apollo. Previous injunctions against Avanti products have been temporary.
At present, an out-of-court settlement seems unlikely. "It's an open secret that the judge ordered mediation a couple of years ago. We all went off-site and were polite, but nothing came of it," McKeithen said.
Michael Santarini contributed to this story.