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Downstream Liability in Trade Secret Litigation After Silvaco

BY Corina I. Cacovean
March 29, 2011

Last year, for the first time, the issue of downstream liability surfaced in the law of trade secret misappropriation. In 2010, a California appellate court held that a software licensee did not know or acquire the secret source code the manufacturer used to make the product and, as a matter of law, it could not be liable for trade secret misappropriation. See Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 216 (Cal. Ct. App. 2010).

Silvaco Data Systems (“Silvaco”) sued several chip makers, including Intel Corp. (“Intel”), which licensed SmartSpice, a chip-testing software developed by Circuit Semantics, Inc. (“CSI”), after CSI allegedly misappropriated the source code of the software from Silvaco and after Silvaco won an injunction barring CSI from using the disputed source code.

The court rested its holding mainly on the finding that Intel never possessed the secret source code connected with SmartSpice and thus, Intel could not be said to have used the trade secret. Id. at 226. Rather, Intel licensed only the object code software, which was not the same thing as the source code. The court explained that Silvaco's accusations were akin to accusing customers who ate pie at a diner of theft, because the diner's chef allegedly stole another's secret pie recipe. Id. at 224.

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