Entrepreneurship, Second Edition

12.13. CASE: Cadence Design Systems and Avant! (A)

A NEST OF SOFTWARE SPIES?^[]

^[] Reprinted from the May 19, 1997 issue of Business Week by special permission, copyright © 1997 by McGraw-Hill Companies, Inc. www.businessweek.com/1997/20/b352792.htm.

The Avant! trade-theft suit could begin to rein in Silicon Valley's freewheeling ways

Business Week, May 19, 1997

Peter Burrows in San Mateo, California

Cadence Design Systems CEO Joseph B. Costello traces his crusade against rival software maker Avant! Corp. to the day in 1994 when Vice President Gerald "Gerry" C. Hsu resigned. Four top employees had left to create Avant! three years before, so Costello wondered if Hsu planned to cross enemy lines, too. According to Costello, Hsu claimed merely to be taking time off at the beach—but was stone silent when asked if Avant! fit into his future plans. A few days later, Costello's suspicions proved correct when Hsu answered the phone at Avant! offices in Sunnyvale, California. "So is this the beach, Gerry?" Costello asked. Hsu declined to comment on the conversation.

Thus began what prosecutors now say was the most blatant case of trade-secret theft in the history of Silicon Valley. On April 11 [1997], Hsu and six other former Cadence officials were indicted on breathtaking charges: They allegedly had used stolen software to build a company with a market value that at one time exceeded $1 billion. The news sent Avant! stock down nearly 60% immediately after the arrests, to $9.81, though ...