TCS Fined $940 Mln By US Jury for Violating Trade Secrets; Will It Negatively Impact Indian IT Sector?

Tata Consultancy Services-001

A US Jury has announced their verdict for TCS in trade secrets violation case; and the amount of fine which was announced has stunned everyone in the Indian IT sector: $940 million.

Almost $1 billion of penalty in violating trade secrets is actually unheard of in India; and now the crucial question has popped: Will it hurt the entire Indian IT Sector?

TCS violated trade secrets?

World’s most powerful IT Services company, TCS, has been accused of violating trade secrets of Epic Systems, a US based healthcare software company. Hearing this case, the federal grand jury in the US State of Wisconsin decided to fine two Tata companies: Tata Consultancy Services Ltd. (TCS) and Tata America International Corp. for ripping Epic Systems’ software and selling as their own.

The jury announced a fine of $240 million for violating trade secrets; and whooping $700 million as punitive damages.

In October 2014, Epic System filed the case in US District Court in Madison, wherein they claimed TCS of “brazenly stealing the trade secrets, confidential information, documents and data” belonging to Epic. It seems that while consulting one of the Epic Systems’ clients, TCS stole data belonging to Epic Systems, and then used the same to enhance their own competitive product.

TCS has said that they will “defend its position vigorously in appeals to higher courts”. As per TCS, there has been no IP infringement, and Judge has promised to reduce the penalty, which has been decided by the jury.

NASSCOM Supports TCS

Meanwhile, The National Association of Software and Services Companies (Nasscom) has decided to back TCS in this lawsuit. Nasscom President R. Chandrashekhar said, “As a policy, we do not comment on a company’s case, but stand by its (TCS) response against the jury’s verdict on the alleged infringement of intellectual property,”

As per Chandrashekhar, the Jury was formed of citizens having no knowledge about the IT industry, as they cannot differentiate between a source code and a user manual; hence this verdict will be successfully challenged in the higher courts.

Will This Verdict Harm Entire IT Industry?

TCS was earlier sued in the US because of racism issues, and there is an ongoing case related with issuance of H1B visa as well; wherein even Infosys is also involved.

Amidst this, this verdict of almost $1 billion fine on TCS will definitely have negative impact on the IT industry, which is anyways going through a slowdown right now; besides fighting the attack of automation and lesser jobs.

The interesting fact is that, projects related with health-care and life sciences accounted for 7.3% of TCS’ revenue during the 3rd quarter, and is considered as one of the fastest growing sector for the IT company. After this verdict, several health-care companies can re-consider their decision to outsource their projects to TCS, and thus, business can be impacted.

On BSE, TCS’s shares slipped 3%, as soon as the verdict was announced, and it is being believed that during the 4th quarter results, TCS will be mentioning this verdict and the impact on their business in US.

Some experts are arguing that this verdict against India’s biggest IT firm will have a ripple effect, and slowdown can be more intense now.

Peter Bendor-Samuel, chief executive of analyst firm Everest Group, said, “In an environment where growth is increasingly hard to find for TCS and other Indian firms, this will come as a setback to TCS, and is likely to have a knock on effect on other Indian firms wanting to go after this market which could be tarred with the same brush,”

Phil Fersht, CEO of HfS Research, said, “Many Indian IT firms have cut corners with regulatory issues in the past, but some have improved with the dire need for compliance, especially in the banking and healthcare sectors. In the current political climate, the knives are out for Indian outsourcers being seen to take short cuts, so they’d better be extra vigilant,”

The jury’s verdict is not the final decision, as the Judge will go through the case, and then give the final judgement. However, one thing is clear: the image and credibility of the Indian IT sector has been definitely dented.

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