SAN JOSE, Calif. -- President and chief executive officer Gerry Hsu and five other employees of Avant! Corp. have been charged with stealing source code from Cadence Design Systems Inc. in an indictment filed April 11 by the Santa Clara County district attorney's office. Avant!, officials last week maintained their innocence and expressed confidence that the company and its employees would be acquitted.

Hsu and two directors of Avant! are among the seven individuals facing felony charges of conspiracy and theft of trade secrets. The defendants were due to be arraigned April 18. In the next legal step, a judge at a preliminary hearing will decide whether to carry the case forward to a jury trial.

Each defendant faces up to seven years in state prison if convicted. Avant! (Sunnyvale, Calif.), which faces the same charges, could be fined or forced to pay restitution if convicted.

The formal charges reflect a two-year effort by Cadence Design to prove that its source code was the basis for Avant!'s first placement-and-routing products for IC design. Cadence filed a civil suit against Avant! alleging source-code theft following a police search of Avant!'s headquarters in December 1995.

"The DA's complaint is exactly consistent with what we've said for the last year and a half," said Joseph Costello, chief executive of Cadence (San Jose, Calif.).

In addition to Hsu, charges were filed against Avant!'s Steven Wuu, Y.Z. Liao, Eric Cho, Eric Cheng and Leigh Huang. Mitsuru Igusa, another former Cadence employee, was also charged.

Bail was set at $100,000 each for all but Igusa, whose bail was set at $50,000. Avant! posted bail for all seven.

The indicted officials were not available for comment last week. In a written response to questions from EE Times, Avant! executives rebutted the charges against them. "We categorically deny that Avant! or its employees had anything to do with the theft of any Cadence place-and-route code," said Hsu.

Avant! said that most of the collected evidence comes from employees of Cadence, private detectives hired by Cadence, or expert witnesses provided by Cadence.

"We believe that the charges were filed because the [DA] has been misled by Cadence on the highly technical issues involved in this case," said John Huyett, chief financial officer of Avant!. "That is especially true with respect to the place-and-route code."

The formal charges mirror the accusations brought by Cadence in a civil suit filed against Avant!. According to both Cadence and the district attorney's complaint, the founders of Avant! left Cadence in 1991 to found a company called ArcSys, taking with them code and a confidential memo about Cadence's Symbad database program.

In 1994, they allegedly conspired with former Cadence employee Igusa, who gave Avant! officials source code for Cadence's Froute, Groute and Qplace programs. Finally, in 1995, then-Cadence employee Eric Cheng allegedly stole source code for Cadence's Vsize programs for use in Avant!'s DSO and "svd" programs.

It was the volume and complexity of material seized that created the long gap between the searches and the formal charges, Deputy District Attorney Julius Finkelstein said.

Some analysts believe Avant! will not be seriously hurt in the market by the suit. "Avant! isn't at risk as a company," said Gary Smith, an analyst at Dataquest Inc. "The company is strong enough now. It's got a good strong marketing position and a customer base that wants it to survive. You're just not going to kill off a company like this." Avant! recently announced a record first quarter, with revenue of $31 million and $6.8 million net income.

The short-term impact will be "fairly minimal," said analyst Ron Collett, president of Collett International. "Customers don't care what's going on behind the screens; they care about getting their products out the door." Avant! has been reducing its reliance on the Aquarius placement-and-routing tools that are at the heart of the criminal and civil cases, Collett said.

Yet Avant! may face sales troubles in the short term. "I think blue-chip customers would be extra cautious of spending money with a company whose officers have been charged with criminal offenses," said Erach Desai, an analyst with Soundview Financial Group Inc.

"It's business as usual," said a spokesman for Advanced Micro Devices Inc., which signed a $2 million purchase order with Avant! in February.

One Avant! customer, speaking anonymously, said the indictments will be a "very critical" factor in future buying decisions. This source said users are concerned that someone else will have to run the company if Hsu is convicted and that the company's attention will be diverted while the indictments are under way.

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