Silvaco Data Systems v. Intel Corp.
109 Cal. Rptr. 3d 27, 2010 D.A.R. 6366, 184 Cal. App. 4th 210 (2010)
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Rule of Law:
Using executable software does not constitute 'use' of the underlying source code for purposes of trade secret misappropriation, nor does possessing only the executable code impart the requisite 'knowledge of the trade secret' for liability under the California Uniform Trade Secrets Act (CUTSA).
Facts:
- Silvaco Data Systems (Silvaco) develops and markets electronic design automation (EDA) software, including a product named SmartSpice.
- Circuit Semantics, Inc. (CSI), a competitor, developed a product named DynaSpice, which Silvaco alleged was created by incorporating trade secrets stolen from SmartSpice's source code by former Silvaco employees.
- Intel Corporation (Intel), a major manufacturer of integrated circuits, purchased and used CSI's DynaSpice software in its business operations.
- Intel only received and possessed the executable, machine-readable version of the DynaSpice software from CSI.
- Intel never possessed, had access to, or was provided with the underlying human-readable source code for either DynaSpice or SmartSpice.
- It was effectively undisputed that using the executable version of the software does not reveal the underlying source code or any trade secrets embodied within it.
Procedural Posture:
- Silvaco sued Intel in California superior court (trial court) for misappropriation of trade secrets under CUTSA, as well as for conversion, conspiracy, and unfair competition.
- The trial court sustained Intel's demurrers to Silvaco's non-CUTSA claims, ruling that they were preempted by CUTSA.
- Intel then filed a motion for summary judgment on the remaining CUTSA claim.
- The trial court granted summary judgment for Intel, concluding that there was no evidence Intel had ever acquired, possessed, or gained knowledge of Silvaco's alleged trade secrets, which were in the source code.
- The trial court entered a final judgment in favor of Intel.
- Silvaco (appellant) filed a timely appeal of the judgment to the California Court of Appeal.
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Issue:
Does a company 'use' a trade secret and possess the requisite 'knowledge of the trade secret' under the California Uniform Trade Secrets Act (CUTSA) when it merely runs executable software compiled from source code that allegedly contains the trade secret, but the company never possesses or has access to the source code itself?
Opinions:
Majority - Rushing, P. J.
No, merely executing machine-readable software does not constitute 'use' of the underlying source code trade secret, nor does it provide the user with the 'knowledge of the trade secret' required for liability. Trade secret law protects secret information itself, not the functional products created from that information. Intel only possessed the executable code, which is the product, not the source code, which is the secret information. The court reasoned that 'use' under CUTSA requires employing or exploiting the secret itself. Using a product made from a secret is not the same as using the secret. The court employed a 'pie recipe' analogy: one who eats a pie does not 'use' the secret recipe it was baked from, even if they know the recipe was stolen. Furthermore, liability requires 'knowledge of the trade secret,' which means possession of the information constituting the secret. Since Intel never possessed the source code, it could not have knowledge of it, and therefore could not misappropriate it. Public policy supports this conclusion, as holding end-users liable would stifle commerce and software innovation.
Analysis:
This decision provides a significant safe harbor for end-users of software under trade secret law. It clarifies that liability for misappropriation does not typically extend down the distribution chain to customers who only use a finished product and lack access to the underlying secret information, like source code. The ruling reinforces the fundamental distinction between the protected trade secret (the information) and the resulting product, preventing the expansion of liability based on mere use of a potentially 'tainted' product. This precedent limits the scope of trade secret claims, forcing plaintiffs to target those who actually acquire, possess, and wrongfully use the secret information itself, rather than downstream customers.
