IPR deed badly backfires for Satyam

Firm’s legal team goes into a huddle; Co says it has some insurance cover; Trial begins in June 2009

MUMBAI: In 1996, Intech Technologies, a company promoted by Simon Joyce and Prafulla Gupta, developed an idea that’s now fairly common — making any telephone a pay-phone by using a prepaid account and a caller PIN or personal identification number.

A year later, Satyam Enterprise Solutions, a subsidiary of the Hyderabad firm, won an $8-10 million, four-year order from Intech to develop the software surrounding the technology, based on a “short and relatively informal memorandum of understanding”.

The case has been well-chronicled by the blog, SpicyIP.  Here’s how it succintly diarises the dispute:
In 1998, when Upaid went about applying for a US patent on this product, it had to demonstrate the ‘unity of ownership’ of the intellectual property right (IPRs) in its invention.

Now, Satyam normally transfers IPRs of products it creates to its customers, but there was no formal agreement stating this.

The MoU itself “dealt only briefly with the ownership of inventions and was silent as to any intellectual property rights”, the court order says.

To meet US Patent Office requirements, the parties finalised an ‘assignment agreement’ transferring Satyam’s IP to Upaid for cash consideration.

This agreement referred also to a service agreement, for which negotiations had begun contemporaneously, but were concluded only in 1999.

The 1999 service agreement, which related to a dedicated unit at Satyam working exclusively on Upaid products, retroactively dated the commencement of activities to September 1998 (around when the assignment agreement was concluded), suggesting that the two agreements were to be read together. The service agreement also contained a clause that reverted rights to Satyam on non-payment for services rendered.

All was well for some time.

Satyam even acquired a quarter of Upaid in a debt-equity swap. But by 2002, things got messy.

Upaid complained about Satyam’s quality of work; Satyam said it had not been paid, and that the IPRs reverted to it; there were issues about Satyam’s representation on the Upaid board; and allegations of IP infringement all around.

Proverbial wisdom having dawned at last, by end 2002, Satyam and Upaid finalised a settlement agreement that superseded all previous agreements, and was under exclusive jurisdiction of English courts.

But all was not over.

In 2005 Upaid began patent infringement proceedings in Texas against two other parties, and sought Satyam’s assistance.

After an interlude of allegations of forgery by the Texan defendants and Upaid on Satyam (which threatened the validity of its original patent), Upaid eventually had to settle that case, it says, on unfavourable terms.

There’s more yet: Presumably sore with its last case, Upaid then applied to the Texas courts for inter alia damages for Satyam’s alleged fraud in the earlier proceedings, and for the consequent alleged breach of the Assignment Agreement in 1999.

In this English case brought by Satyam, it sought an injunction, counter-arguing that either:

1. Upaid’s claims against it in Texas were in breach of the Settlement Agreement, which compromised all such claims, or,
2. The exclusive jurisdiction clause in the Settlement Agreement meant the claims had to be brought before English courts.

The court eventually refused the injunction and held that the Settlement Agreement did not deprive Upaid of future rights to sue for breach of Assignment or for alleged fraud in relation to that agreement.

And after a lengthy discussion on the jurisdiction issue and conflict of laws generally, the court decided that the claims for damages did not concern the validity of the patent itself and there was no clause in the agreement that required these particular claims to be mandatorily litigated in England.

Rabin Ghosh adds:
That was in January. Satyam then went on an appeal in the case.

On Wednesday, the Court of Appeal in London affirmed the January judgement in Upaid’s favour, and asked Satyam to pay the legal costs.

“They (Satyam) tried to kill the case in the UK. The London court refused their plea in January. They appealed and lost again. They now have nowhere to go,” Simon Joyce, chief executive, told DNA Money from London.

The trial date has been set for June 2009.

But Satyam CFO Srinivas Vadlamani told DNA Money on Wednesday that Upaid losing the patent litigation has nothing to do with the documentation the company provided.

“As per our software contract, we will not take responsibility for either the product or the patents subsequently. If the documentation was wrong they should not have accepted it in the first place.”

“The documentation we were to provide pertained to a list of the people who worked on the project with their attestation that they had no claim on the patents. While the litigation so far has been on the jurisdiction of the case, the actual subject matter has not come up for legal debate, which we are confident we will win,” he said.

The Satyam legal team has also gone into a huddle.

“We are covered through the directors and officers’ liability insurance. We are confident we will not pay any damages to them,” he said.

On asked why Satyam did not report the litigation to shareholders though it was filed in July 2007, Vadlamani said, “This is a very small case and we thought it was not material enough and therefore it did not warrant reporting.”

But in its plea to the Court of Appeal for leave to appeal to the House of Lords, Satyam admitted publicly that, “...the effect of the judgment is that collateral proceedings in Texas will proceed. These are likely to be highly detrimental to the appellant and extremely large sums of money are at stake.”