Cadence sues Avant! Corp., formerly known as Arcsys, Inc., for theft of trade secrets, copyright infringement, and conspiracy.

SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 7, 1995--Following an extensive investigation by Cadence Design Systems, Inc. (NYSE: CDN), the worldwide leader in electronic design automation (EDA), Cadence today announced it has filed a complaint against Avant! Corp. (Nasdaq: AVNT), formerly known as ArcSys, Inc., and four individuals for misappropriation of trade secrets, copyright infringement, conspiracy, and other illegalities.

Cadence filed the complaint, No. C-95 20828, in U.S. District Court for the Northern District of California, San Jose, on Wednesday, one day after the Computer Crime/Hi Tech Unit of the Santa Clara County District Attorney's Office conducted a search and seizure at Avant!'s Sunnyvale, Calif., headquarters pursuant to a warrant.

Late Wednesday, U.S. District Court Judge William A. Ingram issued a Temporary Restraining Order to prevent the defendants from modifying or destroying any copy of computer code for any version of Avant!'s ArcCell products, and ordering the defendants to notify Cadence within 24 hours of the location of all off-site storage facilities and all off-site copies of Avant! source code or object code.

Cadence supplies software and services widely used in the design of semiconductors and other electronic products. Avant!, recently formed by the merger of ArcSys, Inc. and Integrated Silicon Systems, Inc. (ISS), is also a supplier of EDA software. The conduct at issue involves only the former ArcSys, its employees, and a "consultant" whom Cadence believes has been secretly working for Avant!.

"We believe we have incontrovertible evidence that Avant! is a company built and sustained with intellectual property stolen from Cadence," said Joseph B. Costello, president and CEO of Cadence. "Our suit alleges that Avant! and the individual defendants stole Cadence source code as part of a conspiracy to unlawfully gain immediate business advantage rather than compete fairly through legitimate means and hard work."

The individual defendants named in the complaint include Avant! Chairman and CEO Gerald "Gerry" Hsu, Mitsuru "Mitch" Igusa, Chih-Liang "Eric" Cheng, and Opher Segev, all of whom are former Cadence employees. Defendant Igusa had previously been charged with six felony counts of misappropriation of Cadence trade secrets.

Filed along with the complaint is a declaration from a leading semiconductor vendor, who is a customer of both Cadence and Avant!, and who independently compared Cadence's commercially available Cell3 Ensemble product with a yet-to-be-released ArcSys product, ArcCell XO, which is still in "beta" testing.

The customer found more than 4,000 strings (a sequence of alphanumeric (ASCII) characters) that matched between the two products, incorrect English grammar repeated exactly the same way in both products, and strings that were similar, but were modified in such a way to make them appear unique.

The vendor's evaluation is consistent with the findings of John Navas, an outside technical expert retained by Cadence, who examined Avant!'s commercially released ArcCell product and concluded: "From all the evidence that I have examined to date, my opinion is that there is an extremely strong presumption of substantial Source Code copying. (In my extensive experience in software theft lawsuits I have not seen a stronger presumption without access to Source Code.)"

Cadence's complaint includes the following allegations, among others:

-- ArcSys's ArcCell product, which represented approximately

90 percent of ArcSys's total pre-merger revenues, contains

computer code directly copied from Cadence's place-and-route

source code. There were also additional examples of stolen

Cadence source code where modifications had been made in an

apparent attempt to conceal the copying before it was used

in ArcCell. (Source code is proprietary computer code that makes

software programs run.)

-- At least two current Avant! employees (defendants Cheng and

Segev) and a third "consultant" (defendant Igusa), all formerly

employed by Cadence, each secretly made and removed copies of

Cadence's proprietary place-and-route software, including, but

not limited to, critical source-code modules of Cell Ensemble

and Cell3 Ensemble, namely FRoute, QPlace, and VSize, just

before each left Cadence.

-- In November 1994, shortly after Igusa resigned from Cadence

and after an internal investigation indicated unusually

large Internet file transfers by Igusa, members of the Santa

Clara County District Attorney's Office conducted a search of

Igusa's home. They found proprietary Cadence source code,

which had been stripped of Cadence's trademark and copyright

notices and was in the process of being further modified.

-- Months after he was found to be in possession of stolen

Cadence trade secrets, Igusa ceased operating under the name

Igusa Consulting and created a company with the fictitious

business name "K2 Design Services" (see discussion of the "K

Team" below), which he began operating out of an office located

one block from ArcSys. As recently as October 1995, Igusa visited

the ArcSys offices on multiple occasions and met with one or

more senior ArcSys technology officers.

-- During the weeks preceding his arrest for the theft of

Cadence trade secrets and his release on $50,000 bail, Igusa

received a series of payments, totaling more than $30,000, from

individuals believed to be members of ArcSys management.

-- In October 1995, a senior Cadence place-and-route

engineering director, Y.T. Lin, abruptly resigned.

Approximately one week before his departure, Lin ordered one

of his employees to transfer to Lin's workstation copies of

Cadence's database generation software -- software so sensitive

that it was until then kept only by that employee and not copied

onto any other Cadence workstation or file server. The employee

complied with the order. In the eight previous years that

Lin had been that employee's immediate supervisor, Lin had never

requested a copy of that software.

-- In violation of the Lanham Act, Avant! has been waging

a public campaign targeting customers, the media, and the

financial community with disinformation and false and deceptive

advertising designed to injure Cadence's industry reputation and

customer goodwill.

-- Avant! has assembled a team of place-and-route engineers,

many of whom are former Cadence employees, that Avant! calls

"the dirty dozen." Cadence believes there is a subset

of this group, called the "K Team," whose mission is to "kill"

Cadence's flagship Cell3 Ensemble product, in part by converting

and incorporating Cell3 Ensemble proprietary source code into

Avant!'s ArcCell XO product. In fact, Cadence has evidence that

ArcCell XO contains Cadence's proprietary source code.

-- Avant! calls its overall campaign against Cadence "JFK," which,

as defendant Hsu has publicly stated, stands for "Just F---ing

Kill" Cadence.

Costello said: "Having known, worked closely with, and trusted the individuals named in our lawsuit, we are dismayed and outraged at their apparent violations of law, ethics, and trust which go way beyond any conceivable standard of fair competition. The brazen and illegal acts alleged in our complaint leave us with no choice but to seek redress for our company, our employees, and our shareholders.

"I want to emphasize that this lawsuit has only one purpose: to preserve and protect the intellectual property created through years of effort by Cadence's hundreds of talented, loyal and dedicated software engineers and other employees and, in turn, to preserve and protect the investment of Cadence's shareholders in that intellectual property.

"In addition to vigorously pursuing our legal rights, we are cooperating with the District Attorney's Office in its continuing investigation. While Cadence has shared certain information with the Santa Clara County District Attorney's Office, that Office is conducting an independent investigation and will reach its own conclusion as to whether or not any crimes have been committed by Avant!/ArcSys or its employees," Costello said. -0-

Note to Editors: All Cadence products referred to are trademarks of Cadence Design Systems, Inc.

CONTACT: Cadence Design Systems, Inc.

Mike Sottak, 408/428-5036

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