In a recent ruling, the 2nd U.S. Circuit Court of Appeals in New York has vacated a $570 million award granted to Cognizant Technology Solutions Corp against its rival software provider, Atos SE's Syntel Inc.
The court ordered a Manhattan federal court to reconsider the case on other grounds, while also affirming Syntel's liability for misusing Cognizant's trade secrets related to its TriZetto Healthcare software.
The legal dispute between Cognizant and Syntel began in 2015 when a Syntel subsidiary filed a lawsuit against Cognizant and TriZetto, alleging that Cognizant's acquisition of TriZetto violated Syntel's contract with the latter. In response, Cognizant countersued Syntel, accusing it of misappropriating trade secrets regarding its Facets software, which is utilized by healthcare insurance companies to automate administrative tasks.
This alleged misuse of trade secrets took place during Syntel's collaboration with TriZetto. While Cognizant initially emerged victorious in defeating Syntel's claims, a jury awarded Cognizant $854 million in damages in 2020 for Syntel's misappropriation of its trade secrets. However, the court later reduced the award to $570 million.
In the recent ruling, the 2nd Circuit affirmed Syntel's liability for misappropriating more than 100 trade secrets belonging to Cognizant. Nevertheless, it contested the legal theory on which Cognizant's damages were based.
The appeals court ruled that Cognizant's estimated savings claim of $285 million, attributed to Syntel's use of the trade secrets for software research and development, did not sufficiently substantiate the "avoided costs" award. The court deemed that Cognizant did not suffer a loss significant enough to support this aspect of the damages.
Apart from the federal trade-secret law damages, Cognizant was also awarded $142 million for trade secret claims under New York law and an additional $59 million for copyright infringement. These amounts were not included in the original damages award determined by the jury. In light of the recent ruling, the Court of Appeals instructed the Manhattan court to reevaluate these specific awards.
Syntel, represented by Kannon Shanmugam of Paul Weiss Rifkind Wharton & Garrison, now awaits the reconsideration of the case on alternative grounds. On the other side, Cognizant is represented by John O'Quinn of Kirkland & Ellis.
The outcome of this case will have significant implications for the protection of trade secrets and intellectual property rights within the software industry.
As the Manhattan federal court reexamines the case, the final decision will help shape future legal precedents and establish clearer guidelines for companies involved in similar disputes.
Both Cognizant and Syntel will undoubtedly be closely watching the proceedings and awaiting the court's revised judgment.