A U.S. appeals court has overturned a $570 million award that Cognizant Technology Solutions had previously secured against rival software provider Syntel, a unit of Atos SE, for the alleged theft of trade secrets related to healthcare insurance software.
The 2nd U.S. Circuit Court of Appeals in New York determined that Cognizant was not entitled to damages under federal trade secret law and instructed a federal court in Manhattan to reevaluate the case based on other grounds.
However, the appeals court upheld the finding that Syntel had indeed misused trade secrets owned by Cognizant’s TriZetto Healthcare. A spokesperson for Cognizant, headquartered in Teaneck, New Jersey, expressed satisfaction with the liability ruling and stated that the company is currently considering its options for appealing the damages decision, Reuters news report said.
The legal dispute originated in 2015 when a Syntel unit sued Cognizant and TriZetto, alleging that Cognizant’s acquisition of TriZetto violated its contract with TriZetto. In response, Cognizant countersued Syntel, claiming that it had misappropriated trade secrets related to its Facets software, used for automating administrative tasks in healthcare insurance companies, during its collaboration with TriZetto and used them to develop a competing product.
Cognizant successfully defended against Syntel’s claims, and in 2020, a jury awarded Cognizant $854 million in damages for the misuse of trade secrets. However, the district court later reduced the amount to $570 million. In its recent decision, the 2nd Circuit confirmed Syntel’s liability for misappropriating over 100 trade secrets belonging to Cognizant. Nevertheless, the court disagreed with the legal basis that had justified the damages awarded to Cognizant.
The damages granted to Cognizant under federal trade secret law were primarily calculated based on the company’s estimation that Syntel saved $285 million in research and development costs by utilizing the trade secrets. The appeals court ruled that Cognizant had not suffered sufficient harm to justify the “avoided costs” award, such as the loss of trade secret value. U.S. Circuit Judge Richard Wesley, writing for a three-judge panel, emphasized that TriZetto’s valuable trade secrets remained valuable and secret.
In addition to the overturned damages, Cognizant had also won $142 million for its trade secret claims under New York law and $59 million for copyright infringement, which were not included in the jury’s original total damages award. The appeals court instructed the Manhattan court to reconsider those awards in light of its recent decision.
The case, identified as Syntel Sterling Best Shores Mauritius Ltd v. TriZetto Group Inc, was heard by the 2nd U.S. Circuit Court of Appeals with the case number No. 21-1370. Legal representation included Kannon Shanmugam from Paul Weiss Rifkind Wharton & Garrison for Syntel and John O’Quinn from Kirkland & Ellis for Cognizant.