June 13, 2005
Magma-Synopsys Litigation
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Jack Horgan - Contributing Editor

by Jack Horgan - Contributing Editor
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There have been several prominent California trials in the public eye: O.J. Simpson, Peterson and Michael Jackson. The EDA industry has its own set of interesting litigations. Magma Design Automation and Synopsys Inc are currently embroiled in a major patent litigation fight. Before we examine the details of this litigation, let us review some general information that has been presented in earlier weekly editorial about

Trade Secrets

Employment agreements and individual rights
A patent is a property right granted by the U.S. Government to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the U.S. or importing the invention into the U.S.” for a limited time in exchange for public disclosure of the invention when the patent is granted. Patent rights date back to the U.S. Constitution Article 1, Section 8, Clause 8 to wit: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;” The first patent was granted in 1790.

Many have raised concerns regarding current patent law and United States Patent and Trademark Office USPTO practices and policies. For example, patent examiners have insufficient breath and depth of knowledge as well as insufficient time and resources to exhaustively investigate all prior art. They rely on the information provided by the applicant plus a search of the patent database. A patent once approved is assumed valid. It takes a considerable amount of time and money to contest a patent. Many simply pay license fees as a shorter, less costly and less risky alternative. The most frequent grounds for contesting patents are based upon prior art or that the claims asserted are too
broad. The person or firm contesting a patent does not have to demonstrate they are entitled to the patent but that the patent was improperly granted or interpreted.

In order to be patentable the invention must be new, useful, and non-obvious. The US uses a first-to-invent system while Europeans use a first-to-file system. Under the US system a person is not entitled to a patent if the invention was "known or used by others in this country, or was patented or described in a printed publication in this or a foreign country" before the date of invention by the applicant for the patent. Further, a patent is barred if "the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States." Note
that this section requires the inventor to file a patent application within one year of his or her publication, public use or marketing of an invention.

One can violate another's patent inadvertently and even without any knowledge of that patent's existence. Of course it can be argued that sophisticated firms working in a narrow area should be aware of relevant patents. Knowledge, or lack thereof, is generally irrelevant to issues of liability. Independent development is not a defense. Knowledge of the patent by the infringer, however, can be relevant to damages. The owner of a patent is entitled to seek redress by can stop offender royalties for past sales.

The theft or misappropriation of trade secrets was criminalized by the Economic Espionage Act of 1996 ("EEA"). According to the Department of Justice the commercial theft of trade secrets is described as
a) Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will injure any owner of that trade secret, knowingly --
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1)through (3); or

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy,
shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.
A defendant convicted for commercial theft of trade secrets can be imprisoned for up to 10 years and fined $250,000 or both. Organizations found guilty under the EEA can be fined can be fined up to $5 million.

Patents and trade secrets are mutually exclusive. The process of obtaining a patent requires public disclosure, while a requirement of a trade secret is that the owner keeps it confidential. A trade secret may become part of a patent but would then cease to be a trade secret. A patent confers a right. While theft of a trade secret is a crime, there is no right to the secret itself. Others are free to use another's trade secret, if they obtain it legally.

Employment agreements often include a covenant not to compete, non-disclosure agreements, assignment of rights to inventions and discovery while employed, non-disparagement clauses, confidentiality of proprietary information, and nonsolicitation of clients, suppliers and employees. Many of these clauses are really concerned with the post-employment period.

Since both Magma and Synopsys are headquartered in California, that state's labor laws are relevant. California Labor Code Section 2870 provides
a. "Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
1. Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

2. Result from any work performed by the employee for the employer.
b. To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable."
A fourth area is the degree to which employers and employees understand these issues and the degree to which they act accordingly. When people begin to work for a new company, they are required to sign numerous documents which they may not have seen before related to benefits, sexual harassment, invention assignment and so on. The new hire has already quit the old job and may have incurred considerable obligations for moving expenses and living accommodations (rent, buy) and hence unlikely to baulk on signing. How thoroughly does the person understand his/her responsibilities?

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-- Jack Horgan, EDACafe.com Contributing Editor.


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