TCS may have to pay lower fine in Epic Systems lawsuit
LEGAL RELIEF The IT giant will have to pay $140 mn in damages as ordered by a US court
nMUMBAI: A US appeals court has judged a $280 million punitive damage imposed on Tata Consultancy Services Ltd (TCS) by a trial court in an intellectual property theft lawsuit filed by Epic Systems as excessive but upheld compensatory damages of $140 million to the US company.
The US Court of Appeals, 7th Circuit, Chicago, has asked the trial court to reassess its order on punitive damages.
Epic Systems, a US medical software maker, accused TCS of stealing its intellectual property in 2014. A jury in 2016 found TCS guilty and awarded Epic Systems $940 million in compensatory and punitive damages. A year later, a court in Wisconsin reduced the fine to $420 million, in line with a new legal limit on punitive damages. With the latest order, TCS has managed to reduce the damage liabilities further.
“The court held that the punitive damages award of $280 million is constitutionally excessive and directed the trial court to reassess the punitive damages. The court upheld the compensatory damages award of $140 million,” TCS said in a filing on the BSE.
“TCS is exploring the options available to it, as it believes that there is no evidence of misuse of Epic information by TCS. TCS will vigorously defend its position before the relevant court,” it said. Punitive damages are awarded by a court to deter illegal actions in addition to compensatory damages. The US Supreme Court has set a limit on punitive damages, stating that it cannot be more than 10 times the initial award given. Epic alleged that TCS staff, employed as consultants at Kaiser Permanente Sunnyside Medical Center in Portland to help implement an Epic software, illegally downloaded more than 6,000 documents containing Epic’s development information by creating a fake user account. The user pretended to be an employee of the hospital and did not disclose that he was a consultant, the lawsuit claimed.
In 2018, TCS gave Epic Systems a $440-million letter of credit.
“TCS has always maintained the claim that it did not misuse or derive any benefit from the downloaded documents and that it was a case of ‘negligence’ rather than theft of IP. Proving the loss due to TCS is not possible because they are not reporting huge business from the similar solution they offer. So, there is good scope to reduce the penalty further,” said Pareekh Jain, founder of Pareekh Jain Consulting and EIIRTREND.
In May, Sebi issued a warning to TCS for not adequately disclosing the damages to investors.
“The disclosures made by TCS to stock exchanges on April 16, 2016 should have prominently displayed the extent of damages to enable investors to assess the impact of the jury’s verdict on the financials of the listed entity,” Sebi said.
TCS had faced similar accusations from Simonelli in 2018—a case that was later dismissed— and CSC in 2019.