satyam was suspected of some serious crimes at the world bank

8/6/2019 Satyam Was Suspected of Some Serious Crimes at the World Bank

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Satyam was suspected of some serious crimes at the World Bank, as its lead IT outsourcer from 2000

through 2008. These allegations were described in depth and with documents in a series of

articleswritten by Richard Behar and published by Fox News (I know, I know.) Satyams criminal

malfeasance seemed to range from Chinese espionage to loading illegal spyware on secure computers

to irregular invoices from Satyam to the World Bank to shadow employees and corporate shell

games.

So now what? In the World Bank's case, as in Bernie Madoff's, a sudden economic crisis seems to

have increased demands on cash flow that can't be fiddled by fancy SAP financial systems and

outsourced accounting staff. But unlike Raju or Madoff, the World Bank's sacred triple-A bond rating

prohibits urgent borrowing -- privately or on the

capital markets -- lest anyone ask why.

In fact, one World Bank insider told me that if all of the countries with trust funds entrusted to the

World Bank were to demand an audit right now, they'd get a rather nasty surprise. Now, that's a

Christmas gift no one wants under their tree.

So lets hope someone starts asking follow-up questions after Zoellicks dodgy answers to Lugar. The

Justice Department should ask; the SEC too. The World Bank's board of member nations might

inquire, and the press, of course.

Upaid is an old Satyam client dating back to the heyday of the dotcom boom of the late 1990s. In

2006, it had filed certain claims of infringement against some companies in the US and in the

proceedings, two former Satyam employees were also named, who later denied signing the patent

assignment documents in 2002.

Upaid then filed a lawsuit in a Texas court in 2007 alleging that Satyam provided forged documents

to Upaid in patents filing that eventually resulted in the company losing its patents infringement case

against telecom giants Qualcomm and Verizon.

It has claimed compensatory and punitive damages from Satyam in the case that is scheduled for

hearing in June 2009 in the Texas court.

''The damages, to be awarded, will be determined by a jury in Texas. I cannot predict the future. But

going by the numbers in the public documents that have been filed over the course of the proceedings

in the London court, the amount could be considerably over $1 billion,'' said Upaid chairman and

CEO Simon Joyce.


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The case is at a very preliminary stage and has to undergo the due process of law and Satyam is

confident that it has merits ito contest the case. ''It is premature to make any judgement on the

quantification of any potential damages and also the matter is sub-judice. Satyam is considering its

legal options as regards the dismissed appeal in the London courts,'' Satyam said in a statement.

Satyam just lost a case in the Court of Appeal in London, seeking to shift the dispute with Upaid

Systems to the UK. Satyam had earlier sought a High Court injunction in London that claimed that

on the basis of the termination agreement between the two, any residual claims against it would have

to be tried in London.

However, on Wednesday, the court in London ruled in Upaid's favour that the case could be heard in

the US court.

After this ruling, Upaid issued a statement, ''This ruling allows Upaid's lawsuit against Satyam

alleging fraud, misrepresentation, and breach of contract and what Satyam admits are 'extremelylarge sums of money', to proceed to a US trial in a Texas federal court.''

Satyam later issued a statement, ''The courts in London have decided that the case in Texas can

continue and be heard based on an earlier assignment agreement signed by Satyam's then subsidiary

and Upaid. Thus the current decision in the UK court has determined the jurisdiction lies in US and

the underlying case is expected to be tried in US in 2009.''

Satyam said it would consider all its legal options. "The issue is still hovering around the jurisdiction

matter we have not even started to discuss the core issue. We will work with our lawyers and take an

appropriate decision," said Srinivas Vadlamani, CFO, Satyam Computer Systems.

Satyam v Upaid: A Short and Avoidable Case

The case ofSatyam Computer Services Ltd v Upaid Systems Ltd[2008] EWHC 31(Comm) is interesting because of implications it might have for companies in thebooming Indian IT-outsourcing sector, specifically relating to intellectual property. Thiswas not an outright IP dispute, eg on the patentability of a product or the ownership of apatent, but more about the contractual agreements surrounding the transfer of IP. It alsoprovides an opportunity to consider some issues of innovation in the Indian IT sector

that are often not interpreted correctly.

The Background

Indian IT companies (like Satyam, Infosys and Wipro) operate on a services model -where products are created for and on behalf of other clients (such as Upaid). Thus, it isthe client who owns the IP rights. When statistics of IP ownership in the Indian IT sectoremerge and there is criticism (especially in domestic media) of the near-absence of


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such ownership, it is usually because of a lack of understanding of the fundamentals ofthe service model.

This model stays afloat because of the assurance of a continuous revenue stream, andan abundance of comparatively cheap IT skills. It is little surprise then that IT in Indiaappears to have entrenched itself in a risk-averse ethic, creating an environment thatdiscourages innovation.

So companies like Satyam continue to remain predominantly 'service' providers, withinsignificant IPR of their own, even though their engineers develop most of the software.Given such a situation, at the very least, service-providers should ensure that theirterms of reference are reasonably lucid and straightforward. The case at hand seems tohave come about because of poor drafing of, or indeed the absence of properagreements for, IP rights Assignment and general Service Agreements betweenSatyam and Upaid, its client company. The dispute might have been entirely avoided ifthere had been some foresight in the timing and drafting of agreements by both parties.

The Case

Upaid, a UK-based IT company, is a mobile payments specialist. In 1996, Upaiddeveloped the idea of converting any telephone into a de facto pay-phone by using apre-paid account and a caller personal identification number. Software developmentwas outsourced to Satyam and, in 1997, they reached a short and relatively informalmemorandum of understanding.m

In 1998, when Upaid went about applying for a US patent on this product, it had todemonstrate 'unity of ownership' of the IP rights in its invention. Satyam normallytransfers such rights in the products it creates for its customers, but there was no formal

agreement to that effect in this instance. The judgment says that the Memorandum ofUnderstanding dealt only briefly with the ownership of inventions and was silent as toany intellectual property rights. To meet the requirements of the US Patent andTrademark Office, the parties finalised an Assignment Agreement transferring Satyam'sIP to Upaid for a cash consideration. This agreement referred also to a Service

Agreement, for which negotiations had begun contemporaneously but which wereconcluded only in 1999.

The 1999 Service Agreement, which related to a dedicated unit at Satyam workingexclusively on Upaid products, retrospectively dated the commencement of activities toSeptember 1998 (around the time the Assignment Agreement was concluded),

suggesting that the two Agreements were to be read together. The Service Agreementalso contained a clause that provided for the rights to revert to Satyam in the event ofnon-payment for services rendered.

All was well for some time. Satyam acquired a quarter of Upaid in a debt-equityexchange. But by 2002 their relationship had deteriorated: Upaid complained aboutSatyam's quality of work; Satyam said it had not been paid and that the IP rights should


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revert to it; there were issues about Satyams representation on the Upaid Board; andthere were allegations of IP infringement from both sides.

Wisdom having dawned, eventually, by the end of 2002, Satyam and Upaid finalised aSettlement Agreement under the exclusive jurisdiction of English courts. This wasexpressed to supersede all previous agreements.

But there was more trouble to come. In 2005, Upaid began patent infringementproceedings in Texas against two other parties, and sought Satyam's assistance in itsdefence. There followed an interlude involving allegations of forgery by the Texandefendants and consequential allegations of forgery by Upaid. The alleged forgeriesthreatened the validity of the original Upaid patent that had been applied for in 1998.Eventually, Upaid claims, it had to settle the Texas case on unfavourable termsbecause of Satyams conduct.

Presumably still smarting from the result of its last lawsuit, Upaid then applied to theTexas courts inter alia for damages for Satyam's alleged fraud, and for a consequent

alleged breach of the Assignment Agreement of 1999.

In the latest round, the English case brought by Satyam, an injunction was sought bySatyam. It argued that either Upaid's claims against it in Texas were in breach of theSettlement Agreement, which compromised all such claims or that the exclusive

jurisdiction clause in the Settlement Agreement meant the claims had to be broughtbefore English courts.

The Commercial Court for England and Wales eventually refused the injunction andheld that the Settlement Agreement did not deprive Upaid of future rights to sue forbreach of assignment or for alleged fraud in relation to that agreement. After a lengthy

discussion on the jurisdiction issue and conflict of laws generally, the court decided thatthe claims for damages did not concern the validity of the patent itself and there was noclause in the agreement that required these particular claims to be necessarily litigatedin England.

The Lesson

So the curtain falls in England. And Satyam has to return to Texas to tackle the oldUpaid lawsuit. At least, it should have learnt from this not to enter into MoUs that areshort and relatively informal, without assessing the costs and risks of future litigation.

Sumathi Chandrashekaran is completing a dual masters degree from the NationalUniversity of Singapore and Sciences Po Paris in public policy/public affairs. She is acontributor to theSpicy IP blog, where an earlier version of this article first appeared:seehttp://spicyipindia.blogspot.com/2008/01/satyam-evam-upaid-who-paid.html

Satyam Computer Services Ltd v Upaid Systems Ltd[2008] EWHC 31 (Comm) isavailable at:www.bailii.org/ew/cases/EWHC/Comm/2008/31.html

Published: 11/02/2008


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Satyam Banned for business with World Bank-Case of Data Theft ?Advert.

Satyam computers have been banned by Word Bank to do any offshore work with them.Forensic research showed that few computers at World bank had spy software installed. Asper forensic agents reports, they were secretly installed by one or more contractor fromSatyam. They said that software who log every key of the workstation were installed. It isnot yet clear whom the information being sent but after discovering this server securitycompromise, the bank had shut the link between World Bank and Satyam Computers -Chennai.

Fox News claims that outsiders have raided the World Bank Group's computer

network, one of the largest repositories of sensitive data about the economies of everynation, repeatedly for more than a year. It is still not known how much information wasstolen. But sources inside the bank confirm that servers in the institution's highlyrestricted treasury unit were deeply penetrated with spy software last April. Invaders alsohad full access to the rest of the bank's network for nearly a month in June and July.

In 2003, Satyam won a lucrative five-year "sole source" contract to design, write andmaintain all of the World Bank's information systems. The contract, which began at$10 million, had grown to over $100 million by 2007. This year, the contract was notrenewed.

While responding on this news, Satyam denies the possibility of any data theft. They saidthat they maintain a high level of standard while their operations. The news speculated by

meida has no validity.

Interestingly, later after the news broadcast from fox news, Bank spokesperson clarifiedthat the story is wrong and is riddled with falsehoods and errors. The story citesmisinformation from unattributed sources and leaked emails that are taken out of context.

satyam was suspected of some serious crimes at the world bank

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