TCS To Make $125-Million Provision In Q3 Over Epic Systems Case

The provision will be made as an exceptional item.

<div class="paragraphs"><p>The TCS House in Mumbai. (Photo: Company)</p></div>
The TCS House in Mumbai. (Photo: Company)

Tata Consultancy Services Ltd. will make a $125-million provision in its third-quarter earnings related to a case involving Epic Systems Corp., after the U.S. Supreme Court rejected the company’s petition to appeal an earlier court verdict. 

The provision will be made as an exceptional item.

“We hereby inform you that in the Epic Systems matter, the United States Supreme Court on Nov. 20, 2023, rejected the company’s petition to file an appeal against the orders passed by the U.S. Court of Appeals, which confirmed the punitive damages award of about $140 million passed by the District Court of Wisconsin,” India’s largest outsourcer said, in an exchange filing on Tuesday.

“The company intends to make the balance provision of approximately $125 million in its financial statements as an exceptional item, for the third quarter and nine months ending Dec. 31, 2023.”

The matter dates back nine years when in October 2014, Epic Systems filed a trade secret-related lawsuit against Tata Consultancy Services and Tata America International Corp. for “brazenly stealing trade secrets, confidential information, documents and data”, according to a Hindu Business Line report dated July 4, 2022. 

The U.S.-based healthcare software company had implemented its healthcare management system in Kaiser Permanente, a healthcare service provider. TCS was hired to test the system implementation. In the course of implementation, TCS employees had restricted access to Epic’s documents. Despite restricted access, Epic Systems alleged that TCS employees used a Kaiser Permanente employee’s credentials to steal more than 6,000 documents.

Then, in October 2017, the U.S. Western District Court in Wisconsin halved the damages to $420 million after TCS appealed against the original order. In August 2020, the U.S. Court of Appeals, 7th Circuit, Chicago, upheld compensatory damages of $140 million and directed reassessment of punitive damage of $280 million against TCS. The punitive damages award of $280 million was “constitutionally excessive”, it had then held, directing the trial court to reassess the punitive damages.

Finally, in July 2022, the Wisconsin court passed an order reducing the jury award of punitive award to $140 million. TCS challenged this as well, but the appeal has now been rejected at the U.S. Supreme Court.

On Tuesday, shares of Tata Consultancy Services fell 0.26% to Rs 3,510.30 apiece on the BSE, even as the benchmark Sensex ended the day 0.42% higher at 65,930.77 points.

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