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
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
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.