US Penalty on TCS May Hurt In­dian IT’s Im­age

Co to ap­peal $1 b penalty im­posed by US court in a trade se­crets theft case Cases Against In­dian IT Firms

The Economic Times - - Companies - Jochelle.Men­donca @times­group.com

Mum­bai: A US court slap­ping nearly $1 bil­lion penalty on the country’s top soft­ware ex­porter Tata Con­sul­tancy Ser­vices in a trade se­crets theft case could im­pact the en­tire In­dian IT in­dus­try at a time when growth is slow­ing, say ex­perts.

While TCS has de­nied any in­fringe­ment of US health­care soft­ware firm Epic Sys­tem’s in­tel­lec­tual prop­erty and said it will ap­peal against the US jury award, ex­perts feel that the case will cause sig­nif­i­cant rep­u­ta­tion dam­age to TCS in the tightknit health­care mar­ket where In­dian IT firms have been try­ing to build their brand and trust. “In an en­vi­ron­ment where growth is in­creas­ingly hard to find for TCS and other In­dian firms, this will come as a set­back to TCS, and is likely to have a ‘knock-on ef­fect’ on other In­dian firms want­ing to go af­ter this mar­ket, which could be tarred with the same brush,” Peter Ben­dor-Sa­muel, CEO of an­a­lyst firm Ever­est Group, told ET.

Sell­ing IT ser­vices to hos­pi­tals and clin­ics is a fast-grow­ing mar­ket and TCS has been try­ing to make a head­way in the space and said it is look­ing at ac­qui­si­tions. Epic Sys­tems is

HCL and Cog­nizant, were sued for bring­ing in In­di­ans to re­place US work­ers

were in­ves­ti­gated by the US govt last year for the use of visas. Cos said probes found no wrong­do­ing

one of the largest providers of soft­ware to the sec­tor.

Ben­dor-Sa­muel said rep­u­ta­tion was taken very se­ri­ously in the health­care space, un­like in other sec­tors. “This judg­ment will likely be used by com­peti­tors to throw sus­pi­cion on TCS and po­ten­tially other In­dian firms, and will make this jour­ney (of win­ning health­care

CRE­AT­ING HEAD­ROOM

Or­ange County filed a case against TCS over an un­ful­filled con­tract

a suit where plain­tiffs have al­leged that com­pany dis­crim­i­nates against non-In­di­ans clients) more dif­fi­cult,” he said. The quan­tum of the dam­ages slapped on TCS also shocked the in­dus­try and high­lighted the trou­ble it could face go­ing ahead. The jury said TCS and Tata Amer­ica In­ter­na­tional had to pay $240 mil­lion in dam­ages plus $700 mil­lion in puni­tive dam­ages. Epic Sys­tems’ an­nual rev­enue last year was about $2 bil­lion.

“All they have to say is that this for­eign com­pany stole se­crets and they got a $940-mil­lion ver­dict. And $700 mil­lion of that was just to pun­ish TCS,” an ex­ec­u­tive with an In­dian IT firm said. “This was a ridicu­lous ver­dict and just high­lights the fact that the en­vi­ron­ment has got­ten vi­ti­ated start­ing with visas and now this,” the per­son said on con­di­tion of anonymity.

In a state­ment, TCS said it would ap­peal against the ver­dict as there was no IP in­fringe­ment. The com­pany also said the Wis­con­sin judge had in­di­cated that he would re­duce the dam­ages amount.

“Many In­dian IT firms have cut cor­ners with reg­u­la­tory is­sues in the past, but some have im­proved with the dire need for com­pli­ance, es­pe­cially in bank­ing and health­care sec­tors,” Phil Fer­sht, CEO of HfS Re­search, said. “In the cur­rent po­lit­i­cal cli­mate, the knives are out for In­dian out­sourcers be­ing seen to take short cuts, so they’d bet­ter be ex­tra vig­i­lant,” he said. Nasscom said le­gal trou­bles fac­ing the IT sec­tor are in dif­fer­ent ar­eas and does not mean the in­dus­try is fac­ing a greater vol­ume of le­gal trou­bles than be­fore.

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