Upaid files amended complaint against Satyam

Nevertheless, there are some immediate points of speculation: first, what has prompted Upaid to move court for an amended complaint? The case is presently in the discovery and opposition stage, with the next date of hearing set to be in June 2009, in a jury trial. That a fresh complaint should be filed at this stage leaves one speculating if there is any new material that may have been unearthed during the discovery stage that warrants fresh complaints being included.

The second question is fairly obvious – what is contained in the new filings that have required them to be sealed instantly on submission. Without any information on the contents, it is impossible to know. Therefore, I leave it at this juncture, with the hope that at some point of time, the documents in the case will be de-sealed, and open for scrutiny by interested observers.

I have with me a copy of the second amended complaint (the last unsealed complaint), which was reported in June this year. In that complaint, the British firm Upaid had gone a step further from its original fraud allegations against Satyam, to include claims of misrepresentation and failure to provide good title.

From a procedural point of view, it is also interesting to note that the initial damages disclosures have already been filed. No access to that is available, but according to the second amended complaint, this claimed amount was well in excess of one billion USD. It will not be surprising if, with this new amended complaint, this amount goes up significantly.

IP valuation is not an area of study I can claim to know at all. However, it won’t be foolish to say that this damages claim is based on the value of Upaid’s IP portfolio, had it remained unscathed and valid for the duration of the contended period and beyond. This would specifically take into consideration the value of the portfolio which was lost subsequent to the patents infringement cases Upaid had to drop against Verizon and Qualcomm, where this case originated from. This value, combined with corresponding royalty fees, appropriately adjusted for economic factors would most likely play a role in determining the final amount of damages.

Satyam, on its part, has consistently maintained that there have been no material developments that merit consideration.

For example, a brief survey of the company’s filings with the US Securities and Exchange Commission finds that this litigation makes no appearance in their most recent annual or quarterly filings. Instead, Satyam states that “As of the date of this document, we are not a party to any legal proceedings that could reasonably be expected to seriously harm our company.” and “Satyam and its subsidiaries on a consolidated basis are not currently a party to any material legal proceedings.”

It is useful to note that both of these filings were made after the London proceedings where Satyam had sought an injunction against the Texas proceedings. (That injunction was refused, and subsequent appeals were also rejected.) Recall that Satyam CFO Srinivas Vadlamani, on being asked why the matter was not reported to shareholders, was quoted as saying “This is a very small case and we thought it was not material enough and therefore it did not warrant reporting.” Indeed, as recently as last week, Vadlamani in an interview with CNBC-TV18 claimed that there was no movement in the case. Perhaps, this interview was given to the TV channel before the amended complaint was filed.

In any event, Satyam is not obliged to report on what it may not consider material legal proceeding, but I do wonder if a claim for damages of this degree is not considered worthy of reporting. Meanwhile, I will not be surprised if this case has prompted other clients of Satyam and/or of other software outsourcing firms in India to revisit their IP Assignment and other Agreements to address concerns of irregularity. As the posts have consistently maintained, there is a valuable lesson here for Indian firms engaged in offsite IP development for clients. Informal agreements ought no longer to be acceptable, and stringent assignment practices need to take the place of mutual understandings and assurances. Elementary legal errors may be potentially very dangerous.

For those of you who are still in the dark of what the case is about: Upaid, a UK-based IT company specializing in mobile payments technology, claims Satyam had provided certain forged documents to support a patent application for a product developed by the Indian company for its British client. This directly affected the validity of the patent. The fraud came to light when Upaid had to withdraw a patents infringement case against two others (telecom giants Verizon and Qualcomm) because of the forgery. And the present proceedings were instituted by Upaid against Satyam in 2007. More details are available in previous posts.