Atos Syntel Defeats $285 Million Damages Award on Appeal in Trade Secrets Dispute

Paul, Weiss achieved a major victory when the Second Circuit vacated a $285 million compensatory damages award against our client Atos Syntel in long-running trade secrets litigation with Cognizant Technology and its subsidiary, healthcare IT service provider TriZetto Group, Inc. The court remanded the case to the district court for further proceedings.

Integrated technology services provider Syntel and TriZetto, which develops software used by healthcare insurance companies, had a contractual agreement that Syntel terminated after TriZetto was acquired by Syntel competitor Cognizant in 2014. Syntel sued both companies in 2015 in the Southern District of New York alleging that TriZetto breached its contractual duties, including, among other things, failing to pay rebates required under the contract, and misappropriating confidential information. In response, TriZetto and Cognizant made a series of counterclaims, including theft of trade secrets under the federal Defend Trade Secrets Act (DTSA), and infringement of copyrights covering aspects of their software.

Paul, Weiss took over the case from prior counsel on the eve of trial and after the district court had entered a preclusion order against our client for alleged discovery misconduct, which presented a substantial obstacle at trial, as the practical effect was a directed verdict on two trade secrets. The jury awarded TriZetto $855 million in large part due to the impact of the preclusion order; we were able to have the combined compensatory and punitive damages reduced to $570 million in post-trial briefing.

On appeal in the Second Circuit, Syntel challenged the district court’s judgment with respect to liability and damages, arguing that TriZetto failed to identify any trade secret with the requisite specificity at trial, and that there was no misappropriation as a matter of law because TriZetto authorized Syntel’s use of the trade secrets. Syntel also argued that upholding a compensatory damages award based on Syntel’s allegedly avoided development costs is impermissible under the DTSA in this case.

In its opinion, the Second Circuit panel agreed with Syntel on Cognizant and TriZetto’s damages claim, vacating the $285 million award.

“The primary question presented is whether the DTSA permits recovery of avoided costs as unjust enrichment damages in this specific case. It does not,” the panel wrote. “Awarding TriZetto $285 million of the costs it incurred to develop its trade secrets would be inconsistent with the purpose of avoided costs in trade secret cases and with the DTSA’s remedial scheme. Under these facts, upholding the avoided costs award would entitle TriZetto to a windfall.”

The Paul, Weiss team includes litigation partners Kannon Shanmugam, who argued the appeal, Jaren Janghorbani and Crystal Parker.