The $940-million fine slapped by a US jury on Tata Consultancy Services (TCS) in an alleged case of trade secret misuse is a wake-up call for India’s information technology sector as it enters a new phase of growth. TCS, the nation’s largest software exporter, has decided to contest the verdict. The fine is more than half the annual revenue of Epic Systems, the company that is suing TCS on the grounds that it downloaded confidential data that could be used to advantage a rival. TCS and Epic interacted in serving a common client. Beyond the merits of the case, which is for courts to decide, we think it is time for India’s software industry and the government to take note of the case that may have profound implications. India’s IT industry has come a long way over the past five decades, with several hurdles on the way. TCS used to be described as a “body shopper” for shipping out software engineers to the US as it pioneered outsourced services. Since then the IT-business process outsourcing (BPO) industry has faced questions on quality and data privacy and visa-related restrictions and charges. Each of these has been addressed or confronted.
India’s software industry is now a mature one with revenues in excess of $150 billion and the competitive edge is shifting from low-cost labour to sophisticated design, product creation and the use of artificial intelligence as new opportunities such as the Internet of Things and cloud computing throw up new challenges. In this new phase, intellectual property (IP) can be an asset, while disputes over IP can cause friction with attendant damage risks. The now-defunct Satyam Computer Services fought a case with UK’s Upaid Systems in one such dispute that showed how improper documentation can be a pitfall in a relationship gone sour.
India’s IT companies need to be educated on both the potential and the problems in an IP-driven strategy. Yesterday’s client can be today’s collaborator and tomorrow’s competitor. A years-long dispute between South Korea’s Samsung and US’s Apple shows that IP tussles can actually be used as tactics in a cut-throat marketplace, with many shades of grey. A South Korean court once ruled that both companies had infringed on each other’s patents, while a $548-million US fine on Samsung is pending an appeal. Corporate battles can sometimes mask trade wars between nations and local jurisprudence can potentially turn unfair. The government must keep its options open to step in and help Indian companies in bodies like the World Trade Organisation (WTO) where overseas courts may be guided by narrow protectionism. Vigilance is critical.