TOKYO -- It's not yet clear whether Cadence Design Systems Inc.'s statements about taking legal action against Avant! Corp. users will have a deterrent effect or result in a backlash against Cadence. But there are indications that some Japanese and U.S. companies may be reconsidering Avant! purchases in the wake of an aggressive speech here by Joseph Costello, president and chief executive officer of Cadence (San Jose, Calif.).

Meanwhile, Cadence customers are about to lose their connection to Technology CAD (TCAD) tools from Technology Modeling Associates (TMA), which is being acquired by Avant! Cadence last week terminated TMA from its "Platinum Partner" Connections program, which is reserved for a handful of suppliers with especially close ties to Cadence.

Late last month, the U.S. Court of Appeals in San Francisco banned sales of Avant!'s obsolete ArcCell product and ordered a lower court to reconsider an injunction against the company's current Aquarius product. In his Tokyo speech, Costello said Cadence may pursue legal action against companies that persist in using banned Avant! products, and he went on to single out several Japanese executives for what he called "incredibly incestuous" behavior regarding purchases of Avant! products.

One Avant! user, an executive for a U.S. semiconductor vendor who spoke on condition of anonymity, said he believes many Avant! users may forestall future purchases in order to avoid legal hassles. This executive noted that semiconductor firms, very concerned about protecting their own intellectual property, would hesitate to use a product that may contain stolen intellectual property.

In Japan, where open confrontations are avoided and corporate reputations are held sacrosanct, Costello's moral outrage has run up against cultural norms. Kinya Tabuchi, vice president of Avant! distributor Maingate Electronics and one of the former Mitsubishi executives attacked by Costello in his press conference, said that many Japanese executives are "very angry" about Costello's comments.

"That kind of personal attack is not considered to be a good business practice in Japan," said Tabuchi, who maintained that Cadence has lost considerable stature in Japan.

But by tarring Avant! (Fremont, Calif.) with software-copying charges, Costello may succeed in getting publicity-shy Japanese companies to think twice before buying Avant! software. Sony Corp., for one, is said to be rethinking whether it wants to use software that may drag the Sony name into an intense legal fray.

Erach Desai, analyst at Soundview Financial Group (Stamford, Conn.), said he called some of his Japanese contacts after hearing of Costello's remarks. "The guys who stayed with Cadence breathed a big sigh of relief that they dodged the bullet," he said. "Others are asking if Cadence has any jurisdiction. People like Hitachi, who are 50-50 Cadence and Avant!, are saying maybe they need to reassess."

A spokesman for Avant! said the company has experienced no disruption in sales since the court ruling and has concluded "dozens" of deals since then. In particular, he pointed to a purchase agreement signed with Rohm Co. Ltd. (Kyoto, Japan), a major provider of components for Japan's consumer-electronics industry. The agreement includes Avant!'s Aquarius tools, he said.

A letter sent to Avant! customers by Gerry Hsu, the company's president and chief executive office, emphasized that the court ruling does not prevent the sale or use of Aquarius placement and routing tools. Avant! no longer sells ArcCell, and claims that all ArcCell customers have been switched to Aquarius.

Gary Smith, analyst at Dataquest Inc. (San Jose), said semiconductor vendors are indeed frightened--not by legal threats, but by their inability to get tools that can handle 0.18-micron designs. Smith said that many IC designers feel that competition from Avant! has forced Cadence's technology to improve. "These guys are scared to death Avant! will be taken out of the picture, and all of a sudden it will be a non-competitive situation again," he said.

Cadence's termination of TMA from its Connections program puts at risk an interface between TMA's Rafael 3-D field solver and Cadence's Dracula and Diva verification products. Roy Jewell, TMA president and chief executive officer, called the move an "extreme action" and said it "puts the customer in the middle of Cadence's legal fight."

David Milam, group director of marketing at Cadence, said his company must reassess Connections membership whenever a company is acquired. And because of the legal situation with Avant!, he said, it's impossible for Cadence to maintain a relationship with TMA.

Last week, TMA announced that it expects its third-quarter revenues to be lower than expected, largely because orders were "unexpectedly delayed" by Innotech, TMA's Japanese distributor. Innotech also distributes Cadence tools and is partially owned by that company.

A Cadence spokesman last week said that no blanket warning has gone out to Avant! customers, and that Cadence will approach customers on a "case-by-case" basis. He said legal action would be taken only as a "last resort" if a customer continues to use a tool that the court determines violates Cadence's copyrights.

Apology sought
Meanwhile, Japanese sources report an intense campaign to get Costello and Cadence to back off from any further attacks on corporate integrity. Matsushita executives reportedly asked Cadence Japan to clarify the situation with a statement of apology for the damage done to Matsushita's corporate image.

Cadence Japan president Seiji Miwa went to Matsushita personally to explain Costello's position, and heard an earful from Matsushita managers offended by the public jabs at Matsushita's name. But Cadence denied reports that Innotech sent a letter of apology to Japanese executives.

Did Costello shoot himself in the foot in a country where Cadence derived about one-fourth of its 1996 corporate revenues of $800 million? One source here said software-copying is such a sensitive issue in Japan that Costello's public stance may make things uncomfortable for the local Cadence Japan staff, but may bring Costello long-term results.

Japan's multibillion-dollar conglomerates are publicity shy in the best of times, and abhor brushes with scandal. In 1983, when undercover FBI agents arrested Japanese computer managers in Silicon Valley for attempting to buy IBM Corp.'s mainframe operating-system software, the sting was widely viewed in Japan as entrapment. But Mitsubishi Electric and Hitachi Ltd. later installed rigorous procedures to guard against software-copyright violations.

As a sign of how nervous companies are becoming about getting caught up in the legal battle between Cadence and Avant!, a Fujitsu spokesman said the company would discuss its new 0.25-micron ASIC family only if questions were not raised about Fujitsu's relationship with Avant!

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