The Fifth Circuit Court of Appeals has largely affirmed a lower court’s ruling in a trade secret misappropriation case, finding that Tata Consultancy Services Limited (TCS) unlawfully used Computer Sciences Corporation’s (CSC) confidential information. The court ordered TCS to pay significant damages but also adjusted the scope of the original injunction.
The case centered around a $2.6 billion contract that TCS won with Transamerica, a company that provides life insurance and other financial services. CSC, a provider of information technology services, alleged that TCS used its trade secrets to win the contract and develop its own software platform called BaNCS.
Background of the Case
CSC and Transamerica had existing agreements for the use of CSC’s software platforms, Vantage and CyberLife. These agreements authorized Transamerica to use and modify the software but stipulated that CSC retained ownership of the software and the confidential information within it. Transamerica was also prohibited from using CSC’s confidential information to reverse engineer a platform for itself.
In 2013, TCS and Transamerica entered into a Master Services Agreement, where TCS was hired as a consultant for Vantage and CyberLife. To facilitate this, Transamerica and CSC executed a Third-Party Access Addendum in 2014, which allowed Transamerica to authorize its consultants, including TCS, to access and use CSC’s software “solely for the benefit” of Transamerica.
While providing maintenance services, TCS sought to enter the U.S. insurance market with its BaNCS software. In 2016, Transamerica began a vendor selection process. TCS won the contract in 2017. As part of the 2018 agreements, TCS hired over 2,200 former Transamerica employees.
CSC expressed concerns about the handling of its intellectual property. Despite CSC’s warnings, the court found that TCS continued to use CSC’s confidential information in developing BaNCS.
The District Court’s Ruling and Appeal
The district court found TCS liable for trade secret misappropriation, ordering it to pay $56 million in compensatory damages, $112 million in exemplary damages, and issuing a permanent injunction. The injunction barred TCS from using CSC’s trade secrets or the version of BaNCS developed using those secrets.
TCS appealed, raising six arguments:
1. Did the contracts authorize TCS’s use of CSC’s confidential information?
2. Did TCS act with the required intent for misappropriation?
3. Did CSC define its trade secrets with enough detail at trial?
4. Did the district court wrongly award both unjust enrichment damages and a permanent injunction?
5. Was the exemplary damages award excessive?
6. Did the district court incorrectly include non-parties in the injunction?
The Appeals Court’s Decision
The Fifth Circuit largely sided with CSC, affirming the district court’s findings on the first five issues and modifying the injunction.
1. Contractual Authorization: TCS argued that its use of CSC’s information was authorized by contracts between Transamerica and CSC. The court disagreed, stating that the Third-Party Addendum, which allowed TCS access to CSC’s software, specified that access was “solely for the benefit” of Transamerica. The court interpreted this to mean that TCS could not use CSC’s information for its own benefit, such as developing its own competing software.
2. Intent (Mens Rea): The court upheld the district court’s finding that TCS knew or should have known that its actions were unauthorized. They cited TCS’s failure to follow its own internal procedures for handling third-party intellectual property and the company’s knowledge of CSC’s concerns.
3. Specificity of Trade Secrets: TCS argued that CSC did not define its trade secrets with enough detail. The court declined to address this argument because TCS had not raised it in the district court.
4. Damages and Injunction Duplication: The court addressed TCS’s argument that the district court erred by awarding both unjust enrichment damages and a permanent injunction. The appeals court agreed that there was some overlap between the damages and the injunction. The court found that the permanent injunction, as it was originally written, could be duplicative of the damages award. To resolve this, the appeals court vacated the original injunction and instructed the district court to modify the injunction to remove the prohibition on TCS’s use of “Post-Misappropriation BaNCS Material” while maintaining the bar on TCS’s access to and use of CSC’s trade secrets.
5. Exemplary Damages: The court affirmed the award of exemplary damages, finding that the 2:1 ratio of exemplary to compensatory damages was not excessive, given the reprehensibility of TCS’s conduct.
6. Scope of Injunction: The court agreed with TCS that the original definition of “TCS Parties” in the injunction was too broad. The court ordered the district court to modify the definition to align with the language of Rule 65(d)(2) of the Federal Rules of Civil Procedure, which governs the scope of injunctions.
Impact of the Ruling
The Fifth Circuit’s decision reinforces the importance of protecting trade secrets and the consequences of their misappropriation. The court’s adjustments to the injunction aim to prevent TCS from benefiting from its misappropriation while ensuring that the remedies are not duplicative.