Tata Consultancy Services (TCS) has received a severe jolt, with a jury in the US fining it a phenomenal $940 million on charges of stealing the intellectual property of another software company. While the final outcome is unknown - the judge in question could lower the fine and TCS has said that in any case it will appeal - there is no question about the severity of the immediate impact. The fine amounts to more than the information technology major's net profits for an entire quarter and is considered the largest on a trade secrets matter. The fourth quarter (2015-16) results of the company, scheduled to be announced today, will not be affected (the bottomline impact will presumably depend on the amount of the fine finally determined and paid) but its outlook will be - and that is bad news. TCS, India's largest software services company, has an iconic status and is a crown jewel of the Tata group, known for its high standards of governance. Hence, the last thing that the company expects it to be accused of is stealing. Also, a blow to TCS will be a blow to the entire Tata group as TCS is its number one money-maker, with a whole lot of other group companies, big and small, underperforming.
From the barest details of the case which are known, it appears that Epic Systems, the largest US proprietary software provider for the management of health information systems, has accused TCS of unauthorised downloads of proprietary data while implementing the Epic Systems solution for a customer. It has provided a motive for this: TCS has accessed the data in order to enhance its own health information management system product which is in competition with Epic Systems'. One would expect well-defined firewalls between proprietary data accessed to service a client and a service provider's own data. R Chandrashekhar, the president of the software lobby group Nasscom, has said that while in a software product the source code is proprietary, the user code or manual given with a product is not. He has added that members of the jury, who are non-technical people, may not grasp such distinctions. This raises the question as to whether the lawyers arguing for TCS did the best job they could in explaining such distinctions to laymen on the jury.
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Questions will inevitably be asked about the level of protection of intellectual property rights (IPR) in India, and it will be averred that TCS is part of a lax culture. But it is difficult to see TCS cutting IPR corners for regular business gain. It has, in fact, categorically declared that it "did not derive any benefit from downloaded documents". It is possible that though its motives were above board, it was lax in interpreting the law and deciding how far it could go in using vendor information for its own proprietary work. There may be a parallel here with Infosys having to pay a fine for infringement of US visa and immigration rules, which was a case of administrative laxity and not conscious misconduct to gain business advantage.
