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Satyam Softwares sued for 1 billion USD- An analysis of a fiasco

May 18, 2008


Its breaking and its happening: Right here, right now.UPAID SYSTEMS, a closely held, American based mobile and online payment specialist, with a huge number of subscribers in its pocket (in tunes of 50 million consumers) and working with a large part of Brazilian mobile service providers for Brazil as well as some parts of South America, has sued Satyam Software Services(SATYAM) for fraud and intellectual property infringement. The purported damages asked is around ahem ahem, USD 1 billion, and yes, Satyam Software Services (from now onwards ‘Satyam’) is a $2.5 billion company.

A blow by blow account of the entire procedure is mined by yours truly from the court proceedings which can be found here

  • Circa 1996,Upaid develop the idea of doing m-commerce with mobile phones. To develop this idea considerable portions of core-project was outsourced to Satyam
    .
  • In June of 1998, UPAID decides to file for the patent and hence asks SATYAM to hand over the rights. But because there were no prior agreements, so they were holding discussions on it. In September same year, UPAID files for the patent
  • By the beginning of 1999, Upaid owed over $ 2 m to SATYAM for the software development but SATYAM decided to take a stake in UPAID. By Sep 1999, Satyam consolidated around 27.06% in Upaid. Srini Raju, Satyam veteran was on the board of Upaid
  • By 2002, the relationship soured badly.
  • On November 1, 2002, the parties met in Hyderabad, and decided to call off the entire relationship, handing over all IP rights to UPAID.
  • What turned out murky, was when Upaid sued Verizon and Qualcomm for patents right infringement in June 2005, alleging that those two companies stole the patent.
  • Now, as Holmes would have said, “the broth is getting thicker, Watson”, the two companies in question, Verizon and Qualcomm produced declarations of two former Satyam employees who sold their invention rights to these companies for a fee. Upon investigations it was found that there was a signature forge by SATYAM.  One of them had in fact sold off his rights in the inventions to Verizon.
  • Upaid is now out, and out with a vengeance.

     

    • So in effect, Upaid claims, complete return of IP rights to Upaid by Satyam and damages worth 1 billion USD to settle for what was an extremely draconian settlement with two of the most aggressive and heavyweight mobile players in US.

    IMHO

    I was talking a lot with my sources who are familiar with law and basically more into corporate and copyright infringement laws.

    • On talks with them what seemed is that its is getting pretty murky for Satyam. If Satyam is held guilty then it will come as a huge financial and goodwill blow to the company. One possible way it can avert and it is trying to take that way is if Satyam is able to prove that the forgery was not done by it.
    • Secondly Satyam looks to be pretty much in a shaky ground for the want of a better evidence supporting its innocence.

    It all depends on how things pan out. To me with what seems is that, Satyam is pretty much downbeat for the case is being solved in Texas Court and not London. Satyam did in fact appeal in Court of Commons and in turn got directed to Texas, which further weakens its position if there was any.

    More importantly if we are to assume, that Satyam does in fact have to shell out, hard cash for such an infringement,then it will be a big blow for the company.What seems to me is that Upaid is out there and out there baying for blood, so rule out any out of court settlement.

    But if, the war becomes long and protracted, (which again seems to be pretty much out of reason) then Upaid and Satyam both will emerge as bleeding parties. The only situation visible from here in Chennai and thousands of miles away from Ground Zero, that Satyam may have to cough up 1 billion plus damages awarded by the jury (if any), quick and fast. Strictly from a business point of view, Satyam, which is a 2.5 billion dollar company, has a high chance of turning bankrupt. Although Cash reserves for IT companies are tremendously huge but its no where to take a toll of 1 billion USD.

    So what will happen if Satyam indeed takes the bite?

    I don’t know how will it roll, for it is almost a dramatic statement to hear the failure of Satyam, then most probably and most certainly in short term Infosys and Wipro will have a higher market capitalization. Expect around jumps of 10-12% [speculative]. But it will need a Robert Prechter to decide about how will it affect the overall business and trust factor for US business community to reel under such a trust breach coming from such a respectable software giant like that of Satyam.

    My take: Short Satyam, Short IT industry, [Long term], Long Infosys,Long Wipro [short term]

    Some big time disclaimer: I donot hold any shares of IT industry, Satyam, Wipro or Infosys neither I have any interests in BSE IT index based derivatives. But I may be advising my family members who may or may not have interests in any or all of them. And yes, I am not a professional analyst, so take whatever I say with a pinch of salt.

    Acknowledgements:

    A legal document of this magnitude can never be understood and let known and fully appreciated by any layman as such, but of course I too can’t say that I have understood but surely I can claim to have a more holistic understanding to this quagmire and legal details. If this is true, then I have to thank two very able legal students who are also very close friends of mine for the help they have extended. They are Ananya Nath, (NLU, Jodhpur) and Basabdutta Bose (NLU, Bhopal). My many thanks to them for helping me out in this and interpreting such a stuff on phone, when the rest of the world is busy in shopping and relaxing on a beautiful Sunday morning.I also thank my dear friend, Visakh to break out this news to me. You can find the first news about it here. He has some great things to say about this.

    For more news before the ‘crowd gets it’, get Jump Up! in your RSS feed

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13 Comments leave one →
  1. May 18, 2008 7:25 pm

    It was an interesting read, thank you!
    I wonder if it is one and only fraud case against Indian IT companies?

  2. Soham Das permalink*
    May 19, 2008 9:35 am

    Thanks Jwalant, 🙂 lets hope it is the only one…

  3. rahul permalink
    June 13, 2008 8:19 pm

    Great work by Soham… really praiseworthy….carry on….

  4. Soham Das permalink*
    June 13, 2008 8:21 pm

    thanks Rahul

    Keep reading and keep commenting 🙂

  5. June 26, 2008 5:56 pm

    Kudos to the writer..!!! please identify man..i couldn;t see the author name.. The news was clear and well told. I liked ur story telling technique and best of all your clear accpetance of not taking the responsiblity to the story at the end leaves the readers in a more confused state. I appreciate your write. Keep up. I being a satyam employee had foreseen this and would be of the future untold events inside. keep the work going.. Last but not least should congratulate ur frnds in NLU for giving youy an insight into the total drama. 🙂

  6. Soham Das permalink*
    June 26, 2008 7:28 pm

    Karthik,
    Here I am, for more, refer the above comments and the About page.

    And thanks for all those kudos…

    I liked ur story telling technique and best of all your clear accpetance of not taking the responsiblity to the story at the end leaves the readers in a more confused state.I appreciate your write.

    Is this your idea of being sarcastic and contradictory all in one breath? 😀 Surely, your sense of humor is like mine: bizarre [I got a company! ]

    Yeah about congratulating those guys in NLU, yeah they are already jumping at such a piece of appreciation from you, and they are already writing their Thank You letters to you, [cc to me]

  7. July 16, 2008 11:17 am

    yes dude… that’s how i appreciate work… it goes soham best of it…
    keep up the work.. ur reply says too.. so ur sense f humour comes
    close to me too…. nice buddy… nythn more i cud know bot u..??
    moreovr i dnt get ny mails frm ur NLU guys… lemme tel u m not desparate for it all… dey need nt thank me buddy… keep the work goin on… next article isee f urs shud be on much more standards of humor and news than this one.. work on it buddy… my best wishes wit u.. and don’t forget to mail me of your next article., 2 my Gmail i.d incase m nt gettin ur mails 2 my company i.d (karthikchandrashekhar at gmail dot com)

  8. Soham Das permalink*
    July 16, 2008 2:21 pm

    Thanks Karthik, I appreciate the goodwill shown 🙂

    “Anything more I could know about you”?
    Shoot with what you wanna know [will try to sound honest, just kidding 🙂 ]

    And about the NLU ‘guys’, they are not guys, they are gals actually 😀

    And about cracking news part, it seems to be eluding me 🙂 But yes, I will try to exercise my insider informants 😉

  9. Jaggie permalink
    August 7, 2008 5:14 am

    Nicely wtitten,

    any updates on this? Like what is the status of this case?

    Am curious to hear the verdict!!!

  10. Soham Das permalink*
    August 7, 2008 9:51 am

    Hi thanks… Satyam responded with a veiled business type statement… defending their stance…

    [em]Srinivas Vadlamani, chief financial officer, Satyam Computer Services, said that from Satyam’s point of view, it had delivered whatever was required to be done. “Absolutely we don’t agree with their (Upaid’s) allegation at all, that there is some forgery and all that.

    “First of all there is no modified intention and also why Satyam should forge those things and what is it that Satyam is gaining – so that is what is going to be contested in the court definitely,” he said.[/em]

    Courtesy CNBC..

    A written form of an interview can be found here:

    http://www.domain-b.com/companies/companies_s/Satyam_Computers/20080515_satyam.html

  11. James permalink
    September 15, 2008 3:32 pm

    didnt understand the abcd of this case from anywhere else until i read this.. good work

  12. Soham Das permalink*
    September 15, 2008 7:18 pm

    Thanks James… 🙂 glad that , my weekend came to some use 🙂

  13. March 23, 2010 3:09 am

    …another good post, I’d expect nothing less from you though :]

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