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Tuesday, May 11, 2021

Explained: Why does TCS need to pay $140 million in damages to Epic Systems?

Epic Systems Corp had claimed that TCS employees had stolen trade secrets of the company while working on a project for them.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi |
Updated: August 29, 2020 9:34:43 am
Tata Consultancy Services, TCS US court, TCS-Epic System Corp,  Tata america, TCS fine, Tata India, TCS intellectual property lawsuitTCS can still appeal its case before higher courts in the US, and present its claim on why its software is not similar to that of Epic Systems’. (Express Photo by Janak Rathod/File)

A US appeals court on Friday (August 21) upheld compensatory damages of $140 million against Tata Consultancy Services (TCS) in an intellectual property lawsuit filed by Epic Systems Corp. The Verona, Wisconsin-based company had claimed that TCS employees had stolen trade secrets belonging to the company while working on a project for them.

What was the case against TCS?

In 2014, TCS and its subsidiary Tata America International Corporation were hired by Epic to help set up its systems at a medical facility in Portland, Oregon, United States. In October of that year, Epic alleged that TCS employees who were working on site at the hospital had unlawfully gained knowledge of trade secrets and intellectual properties of the former.

Based on the information allegedly stolen by TCS employees, TCS had built another software which was a “rip-off” of the original software, Epic alleged. The company also filed a lawsuit against TCS for allegedly stealing its intellectual property.

In April 2016, a Wisconsin jury found TCS guilty, and awarded $240 million in compensatory damages to Epic, and another $700 million in punitive damages.

Subsequently, a judge in Wisconsin brought the costs imposed on TCS down from $940 million to $420 million, including $140 million in compensatory damages and $280 million in punitive damages.

On Friday, the US Court of Appeals, 7th Circuit, Chicago, upheld the award of compensatory damages of $140 million, but asked the lower court to reconsider the punitive damages of $280 million imposed on TCS.

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What are intellectual property rights in the US?

The US Department of State has its own intellectual property (IP) enforcement agency which ensures that the IP rights of US-based companies are protected across the world. The agency seeks to deter access to counterfeit and pirated goods that can harm consumers, ensure that the interests of American IP rights holders are protected abroad, and promote IP protection and enforcement as vital conditions for economic development.

Apart from this, the United States Patents and Trademarks Office protects the intellectual property rights of individuals and companies, as well as the trade secrets of firms.

The agency defines a trade secret as “a formula, pattern, compilation, program, device, method, technique or process”, which can give a company an “opportunity to obtain an economic advantage over competitors who do not know or use it”.

Any violation of either IP rights or trade secrets of American companies can result in the awarding of punitive damages, as well as the seizure of properties of the company that is accused of stealing those rights or secrets.

All such materials, whether physical or software, seized by the agencies then remain in the custody of the court until the matter is decided.

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What does TCS have to say in this?

TCS has maintained that the case filed against it has no material proof, and that it did not “misuse or derive any benefit from downloaded documents from Epic Systems”. However, this is not the only case of its kind involving TCS.

In 2019, another software company, Computer Sciences Corp (CSC) took TCS and its US subsidiary to court for stealing trademarks and other intellectual property software. In a statement released at the time, CSC had said that rather than investing time and resources to develop software which could under the complex insurance system of the US, TCS was “accessing and using CSC’s software source code and documentation and its confidential, proprietary and trade secret information”.

What happens next for TCS?

TCS can still appeal its case before higher courts in the US, and present its claim on why its software is not similar to that of Epic Systems’.

The company has in the past said that it respects the intellectual property rights of the clients and partners it works with, and has no tolerance for any infringement. However, if the higher courts also rule against TCS, the company may face problems with its projects in the US going forward.

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