Trade secrets are like pie recipes, California's 6th District Court of Appeal ruled Thursday.
If a baker has stolen a pie recipe, it doesn't make the eater of said pie liable for trade secret theft.
The simile was applied by Justice Conrad Rushing to Silvaco Data Systems' aggressive effort to extend the reach of liability to customers of a company that stole its trade secrets.
"One who eats the pie does not, by virtue of that act alone, make 'use' of the recipe in any ordinary sense," Rushing wrote in a 42-page published opinion. "This is true even if the baker is accused of stealing the recipe from a competitor, and the diner knows of the accusation."
The decision in Silvaco Data Systems v. Intel Corp., 10 C.D.O.S. 5325, makes it clear that customers are not guilty for the sins of their suppliers. Silvaco had sued a slew of chip makers, including Intel Corp., that bought chip-testing software from Circuit Semantics Inc., after winning an injunction that barred CSI from using the disputed code.
"I think the court drew a very important line that is intended to promote competition by limiting misappropriation to those entities that are involved in the misappropriation -- not commercial customers who purchase products on the open market," said Christopher Ottenweller, an Orrick, Herrington & Sutcliffe partner who led the team representing Intel.
The decision is a big loss for Silvaco and its lawyers at Dechert, who have been working on various parts of the case since 2000.
"We would've preferred a different outcome," said partner Jill Kopeikin, the lead Dechert lawyer. "We're still evaluating the next steps." Dechert partner Chris Scott Graham also worked on the case.
The court published its decision in the Intel case, but also ruled for two of the other chip companies, Cirrus Logic (pdf) and Agilent, in unpublished decisions Thursday. Orrick also represented Agilent, while White & Case represented Cirrus.
In all three cases, Justices Eugene Premo and Franklin Elia concurred.
Still awaiting ruling is a mirror-image dispute between Silvaco and Cypress Semiconductor Corp. in the 6th District.
Dechert had pressed its novel lawsuits by claiming that the chip companies were put on notice about the "tainted" software because of the lawsuit against the alleged thief, Circuit Semantics. Silvaco's lawyers argued that the chip companies didn't actually have to know what was in the code to be misappropriating it.
Justice Rushing did not look kindly on this argument, commenting in a footnote that "strained is too small a word to describe Silvaco's argument."
Extending the pie analogy a little more in the published ruling, Rushing wrote that "Intel appears to have been in substantially the same position as the customer in the pie shop who is accused of stealing the secret recipe because he bought a pie with knowledge that a rival baker had accused the seller of using the rival's stolen recipe. The customer does not, by buying or eating pie, gain knowledge of the recipe used to make it."
Aside from the legal merits, the court also had a bone to pick with Dechert about how the case "somehow generated an appendix over 8,000 pages in length."
"Seldom have so many trees died for so little," Rushing wrote.
"We always appreciate guidance from the court in terms of its expectations," said Kopeikin.