Summary and Background of the Case

Intel purchased some software (apparently some sort of circuit simulator) from a company called Circuit Semantics, Inc., knowing that Silvaco had successfully sued Circuit Semantics about ten years ago for misappropriating trade secrets. The software that Intel purchased apparently contained some of Silvaco’s technology in its source code, although it appears that this technology was not accessible to the end-user in the compiled version of the software. In this action, Silvaco alleged that Intel used the software they acquired with knowledge that contained code that Silvaco had asserted contained their trade secrets, and therefore Intel misappropriated the trade secrets.

It’s important to note here that Intel never had access to the software’s source code. What they purchased was intuitively the same as the sort of product we purchase when we buy a shrink-wrapped software product from a store shelf: executable object-code that is only readable by a computer.

Supposing for the sake of argument that the software was designed using at least one Silvaco trade secret, this case presented the question of whether the use of that software would subject one to liability for misappropriation of a trade secret.

Did Intel Use a Trade Secret?

Pivotal to this case was the question of whether Intel ever actually had, in its hands, Silvaco’s trade secrets.

If the software was designed using at least one Silvaco trade secret, this would mean that the source code behind the software was tainted by the use of Silvaco’s know-how. Sure, since that time the source code had been compiled into an executable program that runs on a computer and is only readable by a machine. But it still contains those features. And Intel bought the tainted software, and began using it. Does that use of the tainted software constitute use of a trade secret?

Under the CUTSA, there are three types of conduct that can constitute a “misappropriation”: acquisition, disclosure, or use.³ What’s interesting to me about these three possibilities is the extent to which “use” stands out. As Judge Rushing points out, you can’t easily “acquire” a trade secret inadvertently. Someone else needs to tell it to you. Similarly, you can’t “disclose” a trade secret without a volitional act. But, in the case of something like software, which originates in one form (human-readable source code) but then typically ships to users as compiled object code (which is only machine-readable), it’s not a stretch to think that I might be “using” several trade secrets right now as I type this blog post on a computer loaded to the brim with commercial software from Apple, Microsoft, and other companies.

Put bluntly, Silvaco asked the court to create a very bad public policy for them. It’s clear to me what they wanted out of this: a holding that would put the onus on users of software to prove ignorance about what trade secrets — even inaccessible ones — might be contained within their organization’s computers.

“Exploiting” vs. “Possessing”

Luckily for us, Judge Rushing blocked. But he did so using one of the most simultaneously satisfying and precarious analogies I’ve ever read in an IP case.

One who bakes a pie from a recipe certainly engages in the “use” of the latter; but one who eats the pie does not, by virtue of that act alone, make “use” of the recipe in any ordinary sense, and this is true even if the baker is accused of stealing the recipe from a competitor, and the diner knows of that accusation.

When explaining software development to people who are not technologically savvy, I have often used the “recipe :: dish” analogy to describe how a program starts as human-readable code and ends as object code, so it’s nice to see that this has been captured eloquently in a meaningful context, and used to make a good point. But, on a more conceptual level, I think the distinction that Judge Rushing draws between “exploit[ing] it for his own advantage” and “taking advantage of something that was made” is a blurry one. But luckily, it works for now.

Mens Rea: The Importance of “Knowledge”

The other important thing about the CUTSA is that it requires a particular mental state.⁴ When you combine that with what we just learned from Silvaco, you get some interesting results, especially when you throw open source software into the mix.

Suppose Software Company X’s trade secret makes it into an open source software project. If Company Y uses the open source software without looking at the source code, has it misappropriated a trade secret? No. But if Company Y does look at the source code, then we need to consider whether it had any knowledge that it contained X’s trade secret and sought to misappropriate it. I can imagine some pretty tangled discovery proceedings arising from this. And Silvaco’s Footnote 7 contains the following:

Nothing said here should be taken to suggest that a defendant cannot be liable for misappropriation unless he personally possessed knowledge of the trade secret. He can of course acquire such knowledge, and indeed can conduct the entire misappropriation, vicariously, e.g., through an agent. Further, constructive knowledge of the secret may well be sufficient, at least in some circumstances. Thus one who knowingly possesses information constituting a trade secret cannot escape liability merely because he lacks the technical expertise to understand it, or does not speak the language in which it was written.

So, even though the compiled software itself might be usable without liability, the source code itself is still tainted, and will expose Y to liability if anyone, at any step of the usage process, meets one of the five types of actionable “use” indicated in § 3426[b][2]:

1. Used improper means to acquire knowledge of the trade secret.
2. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it;
3. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
4. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
5. Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

I think this will go down as a landmark decision in the development of trade secrets in software. It has always been clear that software companies have trade secrets and use them. Now it’s also a little easier to tell when they misappropriate them.

1. Cal. Civ. Code §§ 3426.1-3426.11.
2. Cal. Civ. Code §§ 3426.1-3.
3. Cal. Civ. Code § 3426.1[b].
4. Cal. Civ. Code § 3426.1[b][2][A].