India’s leading IT services company, Tata Consultancy Services (TCS), has announced a significant setback in its third-quarter earnings due to an ongoing trade secret lawsuit. The company has made a provision of $125 million as an ‘exceptional item’ to account for the legal consequences of the lawsuit, which was brought against TCS and Tata America International Corp by US-based Epic Systems.
The trade secret lawsuit, initiated by Epic Systems in 2014, alleges that TCS and Tata America International Corp infringed upon its intellectual property rights by utilizing stolen trade secrets to develop their own healthcare software. Although TCS had been contracted to implement Epic’s software, the company is now facing severe legal repercussions for alleged misconduct.
This unfavorable situation for TCS further intensified with the US Supreme Court refusing to hear TCS’ appeal against the verdict of the District Court of Wisconsin. As a result, TCS is required to pay $140 million in punitive damages as part of the court’s decision.
Initially, TCS was found guilty in 2016 by a jury, which led to an order for $940 million in damages to be paid to Epic Systems. However, after subsequent hearings, this amount was reduced to $420 million, comprising $280 million in punitive damages and $140 million in compensatory damages. Recognizing the excessive nature of the punitive damages, the US District Court for the Western District of Wisconsin further reduced the amount to $140 million in July 2022.
The financial and reputational consequences of this lawsuit will undoubtedly impact TCS’ performance in the upcoming quarter. Nevertheless, it remains to be seen how the company will navigate and recover from this setback in the highly competitive IT services industry.
FAQ
What is the trade secret lawsuit against TCS?
The trade secret lawsuit was filed by Epic Systems against TCS and Tata America International Corp in 2014, accusing them of stealing intellectual property to develop their own healthcare software.
What damages has TCS been ordered to pay?
Initially, TCS was ordered to pay $940 million in damages, which was later reduced to $420 million. The final amount included $140 million in punitive damages and $140 million in compensatory damages.
Has TCS appealed against the verdict?
TCS appealed to the US Court of Appeals, 7th Circuit, Chicago, and the punitive damages were subsequently reduced to $140 million by the US District Court for the Western District of Wisconsin. However, the Supreme Court refused to hear TCS’ appeal against the decision.