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What does the recent TCS lawsuit mean for the company and IT sector

According to Pareekh Jain of Pareekh Consulting, with IT firms now getting into development of products and platforms, there needs to be 'Chinese wall' between products and services.

May 07, 2019 / 10:25 PM IST
 
 
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India’s largest IT firm TCS was recently in the news for a trade secret theft case filed by US-based tech firm CSC.

Given that it is not the first such suit against the IT firm, rather its third after the Epic Systems case, and the Simonelli Innovation Inc case that was later dismissed by a Texas court, analysts say the incident does raise questions about lackadaisical view Indian firms have on intellectual property (IP), lack of guidelines and enforcement for the same.

Mahindra Satyam had also earlier settled an IP infringement lawsuit filed by UPaid, which offers solutions for payments via mobile phone, for $70 million. The suit was filed by UPaid in 2007.

"Indian firms do not take intellectual property concerns seriously. These incidents will force companies to put in stringent guidelines in place and enforce them," said Pareekh Jain of technology consulting firm Pareekh Consulting.

Jain cautioned that larger implication of such cases will be that companies will be more cautious while outsourcing services and put stringent guidelines for IT services firms to follow.

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At the same time, the incidents may not seriously dent TCS' reputation.

What is the lawsuit about?

Last month, US tech firm CSC filed a lawsuit in the US court accusing TCS of improperly accessing its proprietary code to build an insurance platform for the US market. A week later, TCS responded to the allegation in the court stating that lawsuit of CSC lacks evidence and it is aimed at disrupting its $2 billion business deal with Transamerica.

The case is similar to the two others filed against TCS by Epic Systems and Simonelli Innovation Inc.

Let us take Epic Systems case where TCS has levied a penalty of $420 million.

The US-based healthcare software company Epic Systems had implemented its healthcare management system in the Kaiser Permanente (KP), healthcare service provider. TCS was hired to test the system implementation. Epic systems had restricted TCS access to consultants, which limits TCS’ access to Epic's documents.

Despite that, Epic Systems alleged that TCS employees used a KP employee's credentials to steal over 6,000 documents that contain Epic System's development information. Deepak Shenoy in his post said the case was exposed when a whistleblower inside TCS warned KP and Epic about the issue.

In 2014, the company filed a lawsuit against TCS for stealing its intellectual property to develop its own product. "The company did not misuse or derive any benefit from Epic's documents and plans to defend its position vigorously before the trial judge as well as in appeal," TCS said in the filing as quoted by The Economic Times.

The US court in 2016 penalised TCS for $940 million. This was later brought down to $420 million to comply with an existing legal limit on punitive damages. TCS is fighting the case in a federal court.

The Simonelli case

After the Epic case, TCS faced another lawsuit from Simonelli Innovation Inc that alleged the IT major for wrongful and improper use of Simonelli's intellectual property (IP) and trade secrets to build its own consulting practice.

A Mint article, quoting the lawsuit filed by Simonelli on August 15, 2018 said: "This case is being brought because TCS and TAIC (Tata America International Corp.) agreed to keep the IP and trade secrets of Simonelli Innovation confidential and to only use same in projects under the 'Alliance Agreement' that would mutually benefit both entities.

"Despite this, the defendants (TCS) took the methodology and foundation given to them by plaintiff (Simonelli), and used it to transform their consulting options, obtain customers and increase revenue without including the plaintiff as required by the ‘Alliance Agreement’ contract between the parties," the article said.

However, in response to an email query from Moneycontrol, Simonelli said: "Plaintiff and Defendants have resolved all claims in this lawsuit and, pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), Plaintiff stipulates that Plaintiff’s claims against Defendants should be dismissed with prejudice, with each party responsible for its own costs and fees."

Analysts said these incidents are unlikely to affect the reputation of TCS from a business point of view.

"The TCS brand has taken a little hit in the developer community. But from business point of view, most understand that litigation is a separate area and might not cause an impact," said Jain of Pareekh Consulting.

According to Jain, with IT firms now getting into the development of products and platforms, there needs to be 'Chinese wall' between products and services.

Yugal Joshi, Vice President, Everest Group, a consulting firm, agrees that IP charges are not uncommon. However, Joshi pointed out that most service providers do deliver platform-based services and therefore need to further enhance their governance mechanism. In addition, they need to further educate their workforce on enforcing such a mechanism.

"Also, service providers should not buckle under the pressure of growth. Many employees may end up taking unintended and non-malicious short cuts and find themselves violating the IP ownership," he added.

Note: The article has been updated with a response from Simonelli Innovation
Swathi Moorthy
first published: May 7, 2019 06:01 pm

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