On August 20, 2020, the United States Court of Appeals for the Seventh Circuit upheld a jury’s $140 million compensatory damages award in Epic Systems Corp. v. Tata Consultancy Services Ltd. The Seventh Circuit held that there was enough evidence to support the jury’s conclusion that Tata Consultancy Services Ltd. (TCS) stole Epic Systems Corp.’s (Epic) confidential information, including trade secrets, and in doing so, avoided incurring significant research and development costs. Although the jury awarded Epic an additional $700 million in punitive damages, the Seventh Circuit ultimately reduced that award to $140 million.
Epic sued TCS in the United States District Court for the Western District of Wisconsin, alleging that “TCS used fraudulent means to access and steal Epic’s trade secrets and other confidential information.” Epic asserted that TCS “downloaded, from 2012 to 2014, thousands of documents” and used the confidential information contained in those documents to develop a “spreadsheet comparing TCS’s health-record software” with Epic software. TCS’s internal communications showed that “TCS used this spreadsheet in an attempt to enter the United States health-record-software market, steal Epic’s client, and address key gaps” found in TCS software.
In 2016, a jury “returned a $940 million total damages award” in favor of Epic: $140 million for TCS’s use of the comparative spreadsheet, $100 million for TCS’s use of “‘other’ confidential information, and $700 million in punitive damages.” The District Court also entered an injunction “prohibiting TCS from using, possessing, or retaining any of Epic’s trade secrets or confidential information.” After the parties filed post-trial motions, the District Court upheld the jury’s $140 million compensatory damages award for TCS’s use of the comparative spreadsheet, but it struck the $100 million compensatory damages award for TCS’s other uses of Epic’s confidential information. The Court also reduced the punitive damages award from $700 million to $280 million.
Both parties appealed different parts of the District Court’s post-trial rulings. With respect to the compensatory damages awards, the Seventh Circuit upheld the jury’s $140 million verdict based on TCS’s use of the comparative spreadsheet. It reasoned that, under Wisconsin law, “the jury could award avoided research and development costs based on TCS gaining a ‘significant head start in [its] operation.’” It also found that the evidence here allowed “a jury to conclude that TCS used Epic’s confidential information to thoroughly evaluate what it would take to compete in a new market.” So, “the jury would have a sufficient basis to award Epic $140 million in compensatory damages based on the ‘head start’ TCS gained in development and competition.” But the Seventh Circuit held that there was not enough evidence “to support the jury’s $100 million award” because there was no proof that “TCS used any confidential information besides the information incorporated” into the comparative spreadsheet. For that reason, the Seventh Circuit affirmed the District Court’s decision to strike the $100 million compensatory damages award.
Turning to the punitive damages award, the Seventh Circuit observed that the Due Process Clause of the Fourteenth Amendment to the United States Constitution “imposes constitutional limitations” on the amount of punitive damages that can be awarded. Under the “facts and circumstances” of this case, the Seventh Circuit held that the punitive damages could not constitutionally exceed the $140 million that the jury awarded in compensatory damages. As a result, the Seventh Circuit remanded the case to the District Court with instructions to reduce the punitive damages award from $280 million to $140 million.
You can read the Seventh Circuit’s opinion here*.