TCS held against $140 million by US court EPIC Systems case


The United States Appeals Court had upheld the trade secret theft lawsuit verdict against IT major Tata Consultancy Services (TCS) by US company Epic Systems and $140 million in compensatory damages.

However, it said that $280 million in punitive damages was excessive and has directed the trial court to reassess the punitive damages, TCS said in a regulatory filing.

The US Court of Appeals, 7th Circuit, Chicago, held that the punitive damages award of $280 million is constitutionally excessive and directed the Trial Court to reassess the punitive damages. The court however upheld the compensatory damages award of $140 million, according to an exchange filing by TCS, India’s largest software services provider.

In 2018, TCS gave Epic Systems a $440-million letter of credit. TCS’ appeal against US software firm Epic Systems’ trade secret theft lawsuit moved to a US federal appeals court in May, 2019.

“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,” the company said in a statement to stock exchanges.

The US firm’s lawsuit dates back to 2014. The Epic Systems had accused TCS stealing its intellectual property. A jury in 2016 found TCS guilty and awarded Epic Systems a damage worth $940 million. A year after the original award, a court in Wisconsin brought the damage amount down to $420 million. It was done to comply with an existing legal limit on punitive damages for such matters.

Epic had claimed that TCS employees were brought on as consultants to a Kaiser Permanente Sunnyside Medical Center in Portland to help implement an Epic software there and took 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 said.

In May 2020, the Securities and Exchange Board of India (Sebi) issued a warning to TCS for not adequately disclosing the damages in the 2016 Epic Systems’ case to investors. In the financial results declared on 18 April, 2016, ₹6,227.03 crore, or $940 million, was shown as damages awarded by the Jury verdict, as part of contingent liabilities (under ‘Notes to Accounts’).

In a related disclosure dated 1 October, 2017, TCS had mentioned that the court significantly reduced the compensatory and punitive damages to $420 million.

“The damages are substantial, more so when seen in comparison to RS 24,292 crore net profit of TCS (consolidated) for FY16. The disclosures made by TCS to stock exchanges on 16 April, 2016 should have prominently displayed the extent of damages to enable investors assess the impact of the Jury’s verdict on the financials of the listed entity,” said Sebi on 28 May.

This is not TCS’ first tryst with intellectual property cases. In April 2019 the company was in the news for a trade secret theft case filed by US-based tech firm CSC.

In August 2018 Simonelli Innovation Inc filed a lawsuit alleging the IT major for wrongful and improper use of Simonelli’s intellectual property (IP) and trade secrets to build its own consulting practice. This case was later dismissed.