Cadence Design Systems, Inc. v. Syntronic AB is a federal lawsuit in the Northern District of California about electronic design software. Cadence sued a Swedish engineering design group and two of its subsidiaries, one in Santa Clara and one in Beijing. It alleged that they used cracked Cadence licence files for printed circuit board and RF design tools. The case turned largely on procedure and discovery. The court allowed service on the Beijing company through its US lawyers, ordered 24 reformatted computers in China shipped to the United States for inspection, and the parties settled in October 2022 before any ruling on the merits.[2][5][6]
Background
According to the second amended complaint, Syntronic describes itself as a “global design house” with engineering centres in Sweden, China, the United States and other countries. Cadence pleaded that the parent, the Santa Clara subsidiary and the Beijing subsidiary operate as a single enterprise with shared officers, a shared e-mail domain, intercompany accounts and common marketing, and that a Beijing job posting listed experience with Cadence Concept and Allegro as a requirement.[1]
Cadence pleaded that the software was governed by Software License and Maintenance Agreements (SLMAs), which a user must accept when installing the licence manager and the software. In the SLMAs for its PCB tools, the licensee agreed to protect the product from unauthorised reproduction and to keep a mechanism preventing use by unlicensed persons. The agreement for its AWR products, according to the complaint, prohibited circumventing any key code system. The SLMA also contained a clause by which the user submits to the exclusive jurisdiction of the federal and state courts of California.[1][2]
The dispute
Cadence alleged that computers using the Syntronic e-mail domain had used cracked Cadence software, including at IP addresses in California, and that Cadence compiled a list of over 64 machines running the software without a valid licence. It alleged avoided licence fees of at least USD 8.3 million.[1]
Cadence told the group about the usage on 2020-02-05. The group’s chief executive wrote on 2020-06-04 that the Beijing company worked with Cadence software “in projects performed on behalf of a main customer”. Cadence’s pleaded reply was that Syntronic never provided evidence of any such licences and that the usage traced to it was associated with cracked licences.[1] Cadence sent a draft complaint to the group’s US counsel in September 2020 and filed suit on 2021-05-13.[2]
The claims were copyright infringement, circumvention of copyright protection systems under the DMCA, breach of contract and, in the second amended complaint, Lanham Act violations.[1]
Decision or outcome
- Service and jurisdiction, 2021-09-16. The court granted Cadence’s motion to serve the Beijing company through its US counsel under Fed. R. Civ. P. 4(f)(3), denied the motion to quash and the motion to dismiss, and ordered jurisdictional discovery. Cadence had argued jurisdiction on three grounds: alter ego, consent through the click-through agreements and purposeful direction at California.[2]
- Defences struck, 2021-12-13. The court struck all 18 affirmative defences, each pleaded in a single sentence, without prejudice, and gave leave to replead after a meet and confer.[3]
- Inspection of the computers, 2022. After Cadence asked to inspect the computers identified by its phone-home reports, the defendants first said the machines were no longer in their possession. In March 2022 they admitted in sworn answers that they had been recycling and reformatting the computers after notice of the suit, and that they still had 24 of them, all reformatted. The magistrate judge ordered the 24 computers held in China produced for inspection in the United States, and on 2022-06-24 denied reconsideration based on China’s Personal Information Protection Law, holding that the law did not bar compliance. On 2022-09-12 the district judge denied a stay and agreed with those orders.[4][5]
- Settlement. On 2022-10-13 all parties filed a notice that they had reached a binding settlement of the whole case, and on 2022-11-09 they filed a joint stipulation of voluntary dismissal. The filings do not state the terms.[6][7]
No court made findings on whether the licence files were cracked, so the allegations remain allegations.
Significance for software licensing and SAM practice
The points below are commentary on the court records.
- Services firms and client-supplied licences. The group’s stated position was that it used Cadence software for a customer. Whether a customer can supply tools for a contractor to use depends on the customer’s licence, and the complaint’s point was that no licence evidence was ever produced. A contractor that works in a client’s tools should hold a written confirmation of the licence terms for each machine.[1]
- Forum clauses in click-through agreements. The SLMA’s California forum clause was one basis on which Cadence sought jurisdiction over foreign group companies. The court’s order did not decide the point in the passages cited, but it shows why a licence agreement accepted at installation matters for where a dispute may be heard.[2]
- Preserve the machines. Reformatting computers after notice of a claim was admitted in sworn answers and led to an inspection order. See software license audit for how audit and dispute processes treat records and endpoints.[5]
- Related cases. Cadence v. Pounce Consulting involved the same vendor, tools and detection method and ended in a default judgment.
Lessons learned
- A statement that software was used on behalf of a customer who supplied the licences does not answer a vendor’s usage records unless the licences can be shown, machine by machine. Cadence pleaded that no licence evidence was provided in response to the group’s letter.[1]
- A click-through licence with a California forum clause was one of three routes Cadence used to bring foreign group companies into a California court, along with alter ego and purposeful direction. The court denied the motion to dismiss and ordered jurisdictional discovery.[2]
- Recycling or reformatting machines after notice of a dispute led to an order to ship 24 computers from China for inspection, and a Chinese data-protection objection raised late did not stop the order. The magistrate judge held the objection was waived in part and that the law did not bar compliance.[4][5]
- The suit relied on three separate source types: the licence agreements, the vendor’s phone-home reports and the defendant’s own statements in correspondence. A licensee’s letters to the vendor are evidence in later proceedings.[1]