Appeals court slashes Epic’s $420 million damages in trade secrets case

Cristopher Centers

A federal appeals court on Thursday trimmed down Epic Systems Corp.’s win in a trade secrets lawsuit against Indian information-technology services and consulting firm Tata Consultancy Services. While Epic initially scored $940 million in compensatory and punitive damages in 2016, the 7th U.S. Circuit Court of Appeals ruled Tata shouldn’t […]

A federal appeals court on Thursday trimmed down Epic Systems Corp.’s win in a trade secrets lawsuit against Indian information-technology services and consulting firm Tata Consultancy Services.

While Epic initially scored $940 million in compensatory and punitive damages in 2016, the 7th U.S. Circuit Court of Appeals ruled Tata shouldn’t have to pay $280 million in punitive damages, calling it “constitutionally excessive.”

Epic sued Tata and its U.S. subsidiary in 2014 for allegedly breaching a contract that provided Tata employees access to Epic’s proprietary information. Epic alleged Tata used Epic’s internal documents to compare Tata’s healthcare software to Epic’s and to attempt to enter the U.S. electronic health records market.

Thursday’s ruling is the latest hit to Epic’s win in the long-running trade secrets dispute that has seen several post-trial decisions cut down a 2016 Wisconsin federal jury’s award.

The appeals court ordered the Wisconsin district court to further reduce punitive damages, which it said should not exceed the amount of compensatory damages. The district court in 2017 had reduced the $700 million in punitive damages to $280 million due to a Wisconsin law that caps statutory damages to twice the amount of compensatory damages.

U.S. Circuit Judge Michael S. Kanne wrote for the court that although Tata’s actions harmed Epic, the harm “does not support the size of the punitive-damages award.”

“We agree with the district court that TCS’s conduct warrants punishment,” Kanne wrote. “But TCS’s conduct was not reprehensible ‘to an extreme degree.'”

The appeals court upheld a previous ruling from the district court that Tata should pay Epic $140 million in compensatory damages—down from the initial judgment of $240 million—for the benefit Tata received from comparing its software to Epic’s.

Epic’s general counsel, Kyle Kappes, in an emailed statement said the appeals court’s ruling “confirms that it’s wrong to steal from others and protects Epic’s investment, allowing us to continue to develop software that improves healthcare around the world. It also sends a positive message to innovators working to solve significant challenges that intellectual property will be protected.”

The 2014 lawsuit stems from an Epic EHR implementation at Kaiser Permanente.

Kaiser in 2011 brought on Tata as a contractor to help it test and install EHR upgrades. It had previously signed an agreement with Epic in 2003. As part of the project, Epic and Tata entered into an agreement permitting, but limiting, Tata employees’ use of UserWeb, an Epic workspace that aids Epic customers implementing and maintaining its systems, according to court documents.

The agreement gave Tata employees access to Epic’s computer source code and documentation for its computer programs, but Tata and its employees were prohibited from using that information to develop software to compete with Epic, according to court documents.

But as early as 2012 Tata employees began improperly accessing proprietary information via UserWeb, according to Epic’s complaint. Epic also alleged that a Tata employee downloaded more than 6,000 Epic documents—many of which the company said weren’t necessary for his job functions—and shared his credentials with other Tata employees working in India.

Tata in 2016 denied charges against the company.

Tata did not immediately respond to a request for comment on Thursday’s ruling.

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