IP Law Daily Judgment of $420M over stolen medical records slashed on appeal
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Friday, August 21, 2020

Judgment of $420M over stolen medical records slashed on appeal

By Brian Craig, J.D.

The appeals court affirmed the judgment of $140 million in compensatory damages but vacated the punitive damages award of $280 million as it exceeds the outermost limit of due process.

While the U.S. Court of Appeals for the Seventh Circuit affirmed a judgment of $140 million in compensatory damages for stolen medical records and misappropriation of trade secrets owned by Epic Systems Corporation, the appeals court has vacated a punitive damages award of $280 million that exceeds the outermost limit of constitutional due process. The Seventh Circuit agreed with the federal district court in Madison, Wisconsin, that the conduct of India-based medical records provider Tata accessing the web portal of Epic without authorization and misappropriating confidential information warrants punishment, but the conduct was not reprehensible to an extreme degree. The Seventh Circuit remanded the case to the district court to reduce the punitive damages and not exceed a 1:1 ratio of the $140 million compensatory award (Epic Systems Corp. v. Tata Consultancy Services Ltd., August 20, 2020, Kanne, M.).

Epic Systems Corporation (Epic) is a medical records software provider and the largest supplier of Electronic Health Records (EHR) in the United States. India-based Tata Consultancy Services Limited and its U.S. subsidiary, Tata America International Corporation (collectively, Tata), also provide electronic health records. In 2014, Epic sued Tata in a Wisconsin federal district court for repeatedly accessing Epic’s web portal without authorization to obtain Epic’s confidential, propriety information, which Tata used to develop its own, competitive software product and for other improper purposes. The jury returned a verdict in favor of Epic on all claims, including those under Wisconsin law for breach of contract, fraudulent misrepresentation, misappropriation of trade secrets, unfair competition, deprivation of property, and unjust enrichment. The jury found awarded compensatory damages of $240 million and punitive damages of $700 million. The district court reduced the jury’s award of $240 million in compensatory damages to $140 million. The district court also reduced the jury’s award of $700 million in punitive damages to $280 million, for a total judgment of $420 million.

Both parties appealed. Tata appealed both the $140 million compensatory damages award and the $240 million punitive damages award. Epic challenged the district court’s decision to vacate the $100 million compensatory award based on "other uses" of Epic’s confidential information.

Compensatory damages. The Seventh Circuit ruled that the jury had a sufficient basis to reach the $140 million compensatory damages award. Tata’s argument to the contrary relies on the assumption that the comparative analysis was used as nothing more than a stale marketing document. But the jury was presented with evidence that would allow it to conclude the comparative analysis was not just a stale marketing document. The comparative analysis was used to help Tata evaluate its U.S. entry strategy and potentially even address key gaps by improving the product. The evidence also allowed the jury to conclude that avoided research and development costs were a reasonable valuation of the benefit Tata received from using the comparative analysis, which contained stolen information. Likewise, using avoided research and development costs as the valuation of Tata’s benefit, the jury could have reached a $140 million compensatory award.

The Seventh Circuit refused to reinstate the $100 million compensatory award based on "other uses" of Epic’s confidential information. Epic failed to provide more than a mere scintilla of evidence in support of its theory that Tata used any of its other confidential information. Accordingly, the Seventh Circuit affirmed the district court’s judgement of $140 million in compensatory damages award but declined to reinstate the $100 million compensatory award for other uses.

Punitive damages. The Seventh Circuit vacated the punitive damages of $280 million because the award exceeds the outermost limit of the Due Process guarantee in the Constitution. The Due Process Clause of the Fourteenth Amendment imposes constitutional limitations on punitive damages. The U.S. Supreme Court, in testing awards of punitive damages for compliance with due process, has established three guideposts: (1) the reprehensibility of the defendant’s conduct; (2) the disparity between the actual harm suffered and the punitive award; and (3) the difference between the award authorized by the jury and the penalties imposed in comparable cases.

The Seventh Circuit agreed with the district court that Tata’s conduct warrants punishment, but the conduct was not reprehensible to an extreme degree. Tata caused no physical harm to Epic. Tata also did not recklessly disregard the safety of others. And Epic is not a financially vulnerable plaintiff. But Tata’s conduct consisted of a repeated course of wrongful actions spanning multiple years. Tata’s conduct was also intentional and deceitful, not negligent. The court noted that few awards exceeding a single-digit ratio between punitive and compensatory damage will satisfy due process. Tata waived any argument that Wisconsin law might produce a different result.

Neither party pointed to any comparable cases in which any court has upheld a 2:1 or higher ratio resulting in over $200 million in punitive damages. Many courts have instead found awards substantial and imposed a 1:1 ratio based on significantly lower compensatory awards. The Seventh Circuit held that the facts and circumstances of this case do not justify awarding $280 million in punitive damages. Instead, the ratio relative to the $140 million compensatory award should not exceed 1:1. Therefore, the Seventh Circuit remanded the case to the district court to amend its judgment and reduce punitive damages to, at most, $140 million.

This case is No. 19-1528 and 19-1613.

Attorneys: Rick Richmond (Jenner & Block LLP) for Epic Systems Corp. Christopher Egleson (Sidley Austin LLP) for Tata Consultancy Services Ltd. and Tata America International Corp. d/b/a TCS America.

Companies: Epic Systems Corp.; Tata Consultancy Services Ltd.; Tata America International Corp. d/b/a TCS America

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