Why are Infosys and Cognizant in a legal tussle?

Story so far: In August 2024, TriZetto, a Cognizant subsidiary and healthcare solutions provider, took Infosys to court, alleging that the IT major had stolen data from their proprietary software. Four months later, in January, Infosys denied allegations and filed a countersuit against Cognizant CEO Ravi Kumar S, former Infosys executive, for deliberately delaying the launch of its health platform, Helix. Infosys alleged that the U.S.-headquartered IT firm resorted to anticompetitive activities like poaching key personnel and imposing restrictive contractual barriers that stopped its clients from going to competitors and even declining training them on Infosys software. The Bengaluru-based IT giant claimed triple the damages it suffered, along with legal costs.

The case spotlights a bitter rivalry between two major IT services providers that offer similar services, and underlines the need for a rulebook for senior-level executive transitions.

What’s Cognizant’s case against Infosys?

The lawsuit initially filed by Cognizant in the U.S. District Court for the Northern District of Dallas, Texas, states that Infosys breached multiple Non-Disclosure Agreements (NDAs) to illegally access their software applications — Facets and QNXT. The misappropriated data from these solutions was then allegedly leveraged by Infosys to build their own flagship healthcare software, Infosys Helix. Both these software solutions work on automating cumbersome administrative tasks for health insurance companies, like processing claims, billing, and enrolling members. The complaint noted that Infosys had copied TriZetto’s software, repackaging it while also developing software to extract confidential data from QNXT.

“When confronted, Infosys obfuscated to the maximum extent possible, asking TriZetto to simply trust, based on nothing, that there had been no wrongdoing. When TriZetto refused to take Infosys on its word and demanded an audit of Infosys’ use of TriZetto’s information, as explicitly permitted under the NDAs for any reason (much less rampant trade secret appropriation), Infosys refused to comply,” Cognizant said.

Executives frequently switching between IT majors are not uncommon, but tensions were building between Infosys and Cognizant for some time regarding this issue. For instance, there was Rajesh Varrier, a former Infosys executive who served as EVP, Head of Global Services, and Infosys Americas. On September 2, 2022, Rajesh Varrier was appointed as the Global Head of Operations at Cognizant.

Mr. Kumar, who held the positions of President and Deputy COO at Infosys, departed in October 2022 and assumed the top role at Cognizant, effective January 2023. This recent move has escalated the situation.

Infosys’ countersuit revealed its anger. It explained that Mr. Kumar had initially praised Infosys Helix during his time at Infosys, calling it a “challenger to traditional platforms.” However, his enthusiasm for the product waned randomly early in 2022. Consequently, any support he had provided for the platform gradually diminished as he stopped requesting the necessary resources. This ultimately delayed the project’s completion by 18 months.

Notably, the filing doesn’t merely mention Mr. Kumar – there’s also Shveta Arora, a former SVP and Global Head of Domain Consulting Services at Infosys, who transitioned to Cognizant at the end of 2023, assuming the roles of SVP and Global Head of Consulting. Additionally, Ravi Kuchibhotla, a seasoned veteran from Infosys, now leads strategy at Cognizant.

“Kumar continued to ignore requests for additional engineering support for Infosys Helix in the spring of 2022, along with the assistance of Arora and Kuchibhotla, cancelling meetings to discuss the issue, even though the lack of staffing had resulted in a ‘situation where the client is shaming us on the delays and concerns within Infosys that the client might cancel the contract due to these delays,” the claim stated.

Cognizant’s unscrupulous actions, as alleged in the lawsuit, have “artificially raised entry barriers,” adversely impacting competition in the U.S. healthcare sector. This has resulted in increased costs for the general public, leading to higher health insurance premiums.

What’s the history of anti-compete litigation in the Indian IT sector?

​Although similar cases in the U.S. tend to drag on, companies operating in the U.S. prefer to wage these battles there, considering the substantial damages parties are often awarded.

Besides the complications surrounding the charges of data theft and unethical conduct, there’s a recent precedent for non-compete cases involving Cognizant.

“It pops up repeatedly in these lawsuits simply because its U.S.-based and a resolution is faster to achieve there as courts move faster,” Pareekh Jain, CEO and lead analyst at EIIRTrend explained.

Last year, Jatin Dalal, the former Chief Financial Officer of Nasdaq-listed IT firm Wipro, was sued by his former employer. Dalal, who had spent 21 years at Wipro, resigned in September 2023 and joined Cognizant as their new CFO in a surprising announcement in December. The case was eventually settled, with Cognizant paying $505,087 (approximately ₹4 crore) to resolve the dispute. Cognizant also confirmed that a similar settlement had been reached regarding a lawsuit between Wipro and former SVP Mohammad Haque.

Just a couple of days ago, Mr. Kumar addressed questions related to Infosys’ countersuit. While acknowledging that leadership changes are a natural part of attrition and restructuring, Mr. Kumar dismissed the gossip surrounding instability at Cognizant.

Do executive transitions need a better process?

Over the last few years, there has been a noticeable increase in executives moving between major Indian IT companies, with competitors actively recruiting even non-executive employees. Previously, legal action was avoided out of respect, but now there is a need for clear guidelines on what is permissible. Establishing a cooling period, which was once common, is essential. Typically, CXOs had anti-compete clauses in their contracts lasting 6-12 months, but these are often disregarded. Some individuals even join other firms without formal agreements. This case could potentially establish a precedent for similar situations, Jain noted.