US Court upholds $140 mn compensation to Epic Systems in IP theft lawsuit against TCS

The US Court of Appeals, 7th Circuit, Chicago in the United States (US) has upheld compensatory damages of $140 million and directed reassessment of punitive damage of $280 million in the lawsuit by Epic Systems against Tata Consultancy Services (TCS)  for intellectual property theft.

The court held that the punitive damages award of $280 million is constitutionally excessive and directed the Trial Court to reassess the damages.

The case dates back to 2014 when the US-based medical software firm Epic Systems had accused TCS of stealing its intellectual property. A grand jury order in the US in 2016 fined two Tata Group companies—Tata Consultancy Services Ltd. and Tata America International Corp.— with a $940 million fine in a trade secret lawsuit filed against them by the Wisconsin-based software firm. In October 2017, after one year of the original award, a Wisconsin Court reduced the amount of punitive damages to $420 million. This was done to comply with an existing legal limit on punitive damages for such matters.

In January 2018, TCS said it made a $440 million letter of credit available to Epic Systems.

The Tata Group company said that it is exploring the legal options available as it believes that there is no evidence of misuse of Epic information.

The matter relates to a U.S. grand jury order that slapped two Tata Group companies—Tata Consultancy Services Ltd. and Tata America International Corp.—with a $940 million fine in a trade secret lawsuit filed against them by the Wisconsin-based healthcare software firm in 2016.

According to the allegations in the lawsuit, TCS had relocated its employees as consultants at Kaiser Permanente Sunnyside Medical Center in Portland. The accusations are that the TCS employee who was tasked to implement Epic’s healthcare software took more than 6,000 documents and 1,600 unique files containing “detailed information on features and functionalities of its software” by creating a fake ID. The user pretended to be an employee of the hospital and failed to disclose that he was a consultant, according to the lawsuit.

Markets regulator Securities and Exchange Board of India (SEBI) in May 2020 had warned TCS to be careful in dealing with disclosure of material information including the damages in the 2016 Epic Systems case to investors after it found that the IT major did not prominently display the extent of damages related to the case in the US.

In the financial results declared on 18 April, 2016, TCS showed Rs. 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.