Silvaco Data Systems and Misappropriation of Source Code

In the decision of Silvaco Data Systems. v. Intel Corporation (April 29, 2010), Judge Conrad Rushing of the Sixth Appellate District of the California Court of Appeal has authored a compelling and fascinating opinion.  Compelling for its holding that one who uses software (executable object code) does not thereby misappropriate trade secrets embodied in that software’s source code, which the user never possessed, acquired or used.  Fascinating for Judge Rushing’s methodical dissection of the arguments and “strained” logic advanced by Silvaco in its attempt to prove its case; fascinating also for the simplicity of the Judge’s wonderful “pie analogy,” which explains the decision in a very simple way.  In all, an informative, unambiguous, challenging and, yes, entertaining, decision.

Silvaco appealed an adverse trial court ruling throwing out its case in which it claimed that Intel was guilty of misappropriation of trade secrets because it “…had used software acquired from another software concern with knowledge that Silvaco had accused that concern of incorporating source code, stolen from Silvaco,”  The court of appeal framed the issue as follows:  “…whether a defendant can be liable for misappropriation of a trade secret which is admittedly embodied in source code, based upon the act of executing, on his own computer, executable code allegedly tainted by the incorporation of design features wrongfully derived from the plaintiff’s source code.”

The court’s answer was, no.  In the process of reaching that answer, the court addressed numerous arguments by Silvaco including that Intel had nevertheless “used” or “acquired” trade secrets, although never possessing the source code; that Intel should be liable for misappropriation whether or not it “comprehended” the trade secrets; that Intel was judicially estopped from claiming that it did not violate the California Uniform Trade Secrets Act; and, that the Act was not the exclusive remedy available to Silvaco. 

Intel argued throughout the litigation that “…it could not have misappropriated Silvaco’s trade secrets—could not have acquired, disclosed, or used them—because it never had them.”  The court found the evidence supporting this position was uncontroverted.

In his lengthy decision, Judge Rushing addressed each of Silvaco’s arguments, and more.  But ultimately, two simple concepts controlled.  The first has to do with eating the pie. Rejecting Silvaco’s argument that Intel “used” the trade secrets, the court stated:

One who bakes a pie from a recipe certainly engages in the “use” of the latter; but one who eats the pie does not, by virtue of that act alone, make “use” of the recipe in any ordinary sense, and this is true even if the baker is accused of stealing the recipe from a competitor, and the diner knows of that accusation. Yet this is substantially the same situation as when one runs software that was compiled from allegedly stolen source code. The source code is the recipe from which the pie (executable program) is baked (compiled).

Intel only ate the pie.  Judge Rushing succinctly stated the second fundamental point:  “…one cannot be said to have stolen something he never had.”

No doubt the decision on the merits will generate much discussion, as will its intriguing footnote 2, which deals with appellate practice, and is treated in another post on this site.  And, perhaps the decision will be subject to further review.  

Stephen C. Gerrish, Litigation Group