Cadence Design Systems, Inc. v. Pounce Consulting, Inc. is a federal lawsuit in the Northern District of California about electronic design automation (EDA) software for printed circuit boards. Cadence sued a California staffing and electronics services company and its Mexican affiliate, alleging that they used cracked licence files and a cracked licence manager to run Cadence’s Allegro, OrCAD and PSpice. Both defendants ended up in default. On 2019-04-25 the court entered a judgment of USD 6,983,178.29 and a permanent injunction, and it later awarded Cadence attorneys’ fees of about USD 2.1 million.[4][6]
Background
According to the first amended complaint, Cadence typically licenses its software as floating or concurrent licences: the customer buys a set number of seats that any licensed user may occupy, provided concurrent use does not exceed that number. The customer receives an invoice that shows the licence purchased, and a licence file. The software does not run unless the Cadence License Manager is installed, either on the local machine or on a network server, and the manager cannot be installed unless the user accepts the Cadence Software License and Maintenance Agreement. The user must accept again when installing the software itself, and then point the manager at a licence file issued by Cadence. The licence file states how many licences are available and which software and options the user may use.[1]
Cadence also alleged that its software contains measures that transmit data to Cadence when they detect unauthorised alterations or use, such as counterfeit licence files, and that product options are locked unless purchased. A cracked licence manager or licence file unlocks all options at once.[1] The magistrate judge’s report describes these as “phone home” measures, and notes that users consent to the collection of information by accepting the agreement.[2]
The defendants were Pounce Consulting, Inc., a California company, and Pounce Consulting, S.A. de C.V., a Mexican company with a delivery centre in Guadalajara. The complaint described Pounce as providing embedded design, electronics manufacturing, IT and staffing services, including services that use Cadence software. Cadence alleged the two entities were alter egos of each other.[1]
The dispute
Cadence alleged that Pounce never bought a licence from Cadence or an authorised distributor, held no invoices, and used cracked licence files and altered copies of the licence manager. It advertised Cadence skills in job postings, which Cadence used as evidence of use. Cadence’s tracking identified more than 25 machines that used the software without a valid licence, linked to Pounce domains, e-mail addresses, IP addresses and machine names.[1] Cadence told the Mexican company’s chief executive on 2016-01-28 that it was using cracked software. Cadence alleged that Pounce’s counsel signalled a willingness to settle for months, but that Pounce never paid and then stopped responding.[1]
The complaint, filed 2017-08-15 and amended on 2017-11-01, pleaded copyright infringement under 17 U.S.C. section 501, circumvention of copyright protection systems under section 1201, and breach of the licence agreement. Cadence’s pleaded position was that Pounce accepted the licence agreement when it installed the software, and so was bound to protect the software from unauthorised reproduction and to keep a mechanism preventing use by unlicensed persons.[1]
Decision or outcome
The case ran for nearly two years with, in the court’s words, “on-and-off again participation” by the defendants. Defence counsel failed to appear at a case management conference in November 2017 and was sanctioned by the court. The Mexican company’s default was set aside in 2018 and then re-entered after it failed to retain new counsel. Pounce Consulting, Inc. was likewise left in default.[2][5][7]
The magistrate judge’s report accepted Cadence’s evidence that its tracking measures recorded at least 6,933 unauthorised uses of Allegro, OrCAD and PSpice on 26 computers. On that basis Cadence calculated that the defendants would have needed 31 annual Allegro licences, 34 OrCAD licences, 15 PSpice licences and 36 product-option licences. Cadence asked for statutory damages of USD 17,332,500 on the circumvention claim. The magistrate judge found that figure unreasonable and recommended USD 300 per incident.[2] The district court adopted the reports without change on 2019-04-22.[3]
The final judgment of 2019-04-25 held both defendants jointly and severally liable on all three counts, as alter egos, and awarded the following. A permanent injunction bars them from using, downloading or accessing any Cadence software, including all versions of Allegro, PSpice and OrCAD.[4]
| Claim | Award |
|---|---|
| Breach of contract | USD 783,310 in lost licence revenue plus interest at 1.5% per month under the agreement (USD 1,146,902.56), a total of USD 1,930,212.56 |
| Copyright infringement | USD 2,973,065.73 as disgorgement of the defendants’ profits |
| Circumvention (DMCA) | USD 2,079,900 in statutory damages, USD 300 for each of 6,933 known incidents |
| Total | USD 6,983,178.29 |
Attorneys’ fees and costs were awarded under section 28 of the licence agreement. On 2019-06-26 the court granted the fee motion, and a later order describes the fee and cost award as about USD 2.1 million.[4][5][6]
The defendants did not pay voluntarily. A writ of execution for USD 7,053,627.90 issued on 2019-06-03. On 2019-08-06 the court denied Cadence’s motion to add the Mexican company’s chief executive as a judgment debtor. The docket shows a Ninth Circuit appeal (No. 19-16761) in which rehearing and rehearing en banc were denied on 2021-01-29; the docket entry does not state the result of the appeal itself.[6][7]
Significance for software licensing and SAM practice
The points below are commentary on the court records.
- The licence is formed at installation. The agreement on which Cadence relied was accepted by a click-through during installation of the licence manager and the software. The court treated an installer without any purchased licence as bound by the agreement, including the fee-shifting clause.[1][4]
- Licence files are the control point. In floating-licence tools the licence file and the licence manager decide what may run. Tampering with either, or using one from another source, was the core allegation here, and the same allegation recurs in Synopsys v. Sunlune and Synopsys v. InnoGrit.
- Identification came from usage data. Cadence tied unlicensed machines to a company through domains, e-mail addresses, IP addresses and machine names reported by the software. A user cannot assume that a cracked copy is anonymous.[1]
- Service companies carry the risk for client work. The court awarded disgorgement of profits on top of lost licence fees, which reflects that the defendants used the tools to perform paid design contracts for third parties.[2]
- For the general audit process and how to reconcile installs with entitlements, see software license audit and license compliance.
Lessons learned
- Software that is installed by clicking through a licence agreement binds the installer, even when no invoice or licence was ever purchased, and the same agreement can carry a fee-shifting clause. The judgment found breach of the agreement and awarded fees under its section 28.[4][5]
- Licence-manager call-home records that tie machines to company domains, e-mail addresses and machine names can identify the user of a cracked licence file and count the unauthorised uses. The damages model started from 6,933 recorded uses on 26 machines.[2]
- One claim, three measures of loss: the court awarded lost licence fees with contractual interest, disgorged profits and per-incident statutory damages for circumvention. The three together came to USD 6,983,178.29 before fees.[4]
- Using engineers on client projects with cracked tools exposes the profit earned on those projects, not only the licence fee that would have been paid. Disgorgement of profits of USD 2,973,065.73 was the largest single element.[2][4]