CHICAGO — A federal appeals panel said a $280 million verdict in a health care trade secrets lawsuit could still be too rich, even after it was already cut from more than $700 million.
Software company Epic Systems Corp. won the judgment against Tata Consultancy Services, a subsidiary of Tata America, in U.S. District Court for the Western District of Wisconsin. Epic said Tata downloaded thousands of proprietary documents from 2012 to 2014 to compare its own health records software to Epic’s in order to steal American clients.
A jury awarded Epic $140 million in compensatory damages for Tata’s use of a spreadsheet it created with Epic’s data, $100 million for benefits from Epic’s other confidential information and $700 million in punitive damages.
Carter G. Phillips
| Sidley Austin LLP
Following several post-trial motions, Judge William Conley vacated the $100 million award and reduced the punitive award to $280 million, reflecting Wisconsin’s law that statutory damages can’t be more than double a punitive award. That led both parties to raise issues with the U.S. Seventh Circuit Court of Appeals. Judge Michael Kanne wrote the panel’s opinion, issued Aug. 20; judges Joel Flaum and Daniel Manion concurred.
“The complexity of Epic’s health-record system requires Epic’s customers to consistently update and test their systems,” Kanne wrote, noting that process requires users to access a web portal that contains confidential information about the software. As such, Epic maintains a strict credentialing process.
Kaiser Permanente, the country’s largest managed health care organization, got an Epic license in 2003. Kaiser hired Tata in 2011 to help manage its proprietary version of the Epic software, KP HealthConnect. At the time, Tata was selling its own health records software, Med Mantra, primarily in India. Although Kaiser imposed rules Tata was supposed to follow while working on KP HealthConnect, and repeatedly denied access to the confidential information, the company eventually broke through.
According to Kanne, in late 2011 Tata hired Ramesh Gajaram, an engineer who had already worked for a different company that tested KP HealthConnect. During that stint, “Gajaram falsely identified himself to Epic as a Kaiser employee, and Epic granted” full access. Gajaram told his Tata supervisor he still had full access, and he then shared his credentials with colleagues in India and Oregon.
In 2014, a Tata employee who noticed Med Mantra had been significantly improved discovered the spreadsheet comparing the two products and obtained a less-detailed document called the “comparative analysis,” which Kanne said is key to the appeals and was part of Tata’s attempt to win Kaiser’s business.
On appeal, Tata asked the panel to examine the $140 million compensatory award, while Epic wanted the $100 million reinstated. The panel upheld the compensatory damages, saying the issue is not, as Tata argued, the cost to Epic, but rather the benefit Tata obtained through its conduct, conceived as a head start on research and development.
However, the panel agreed with Tata that Epic failed to prove the use of confidential information outside of what was included in the comparative analysis and therefore agreed Conley was correct to vacate the additional $100 million in damages. Specifically, Epic’s evidence Tata used proprietary information to improve Med Mantra was lacking because he Tata employee who raised the concerns didn’t have sufficient details or recollections.
The panel rejected Tata’s argument the compensatory damages precluded a punitive award as well as its suggestion the award could’ve been based on Epic’s unjust enrichment claim, which isn’t eligible for such an award. It also said the vacation of the $100 million in compensatory damages doesn’t mean the punitive award needs to be vacated and retried.
However, the panel did agree with Tata’s final argument, that the punitive award violates its due process rights. Epic didn’t suffer physical harm, nor did Tata act with “indifference to or a reckless disregard of the safety of others,” Kanne wrote. Further, Epic “is not financially vulnerable.” Although Tata was found to have “a repeated course of wrongful acts,” its conduct didn’t meet the standard of “reprehensible to an extreme degree” required to justify such a large award.
Ultimately the panel said the punitive award shouldn’t exceed the compensatory damages and remanded the case for Conley to reduce damages to no more than $140 million.
Epic Systems has been represented by attorneys from the firm of Jenner & Block, with offices in Chicago and Los Angeles, including Michael T. Brody, Rick Richmond and Nick G. Saros; and attorneys from the firm of Quarles & Brady, of Madison, Wis., including Anthony A. Tomaselli and Kristin G. Noel.
Tata has been represented by attorneys Carter G. Phillips, Constantine L. Trela Jr., Robert N. Hochman, Neil H. Conrad and Christopher M. Egleson, of the firm of Sidley Austin LLP, with offices in Chicago, Los Angeles and Washington, D.C.