By Blake Brittain

A U.S. appeals court on Thursday vacated a $570 million award Cognizant Technology Solutions Corp had won against rival software provider Atos SE's Syntel Inc for theft of its trade secrets related to healthcare insurance software.

The New York-based 2nd U.S. Circuit Court of Appeals said Cognizant was not entitled to the damages under the federal trade secret law and ordered a Manhattan federal court to reconsider based on other grounds.

The court, however, affirmed that Syntel was liable for misusing the trade secrets that belonged to Cognizant's TriZetto Healthcare.

A spokesperson for Teaneck, New Jersey-based Cognizant said the company was pleased with the liability ruling and is "evaluating its appeal options" for the damages decision.

Representatives for France-based Atos did not immediately respond to a request for comment.

A Syntel unit first sued Cognizant and TriZetto in 2015, alleging Cognizant's acquisition of TriZetto resulted in a breach of Syntel's contract with TriZetto.

Cognizant countersued Syntel for taking trade secrets related to its Facets software, used by healthcare insurance companies to automate administrative tasks, during its work with TriZetto and using them to develop a competing product.

Cognizant fended off Syntel's claims, and a jury awarded it $854 million in damages against Syntel for misusing its trade secrets in 2020. The district court later cut the award to $570 million.

The 2nd Circuit affirmed Thursday that Syntel was liable for misappropriating more than 100 Cognizant trade secrets. But it took issue with the legal theory that had justified Cognizant's damages.

Cognizant's award under federal trade-secret law was largely based on its estimate that Syntel saved $285 million on research and development for its software by using the secrets, an amount the court doubled in punitive damages. The appeals court said Cognizant did not suffer harm that would justify the "avoided costs" award, such as losing the value of its trade secrets.

"TriZetto's valuable trade secrets are still that—valuable and secret," U.S. Circuit Judge Richard Wesley wrote for a three-judge panel.

Cognizant also won $142 million for its trade secret claims under New York law and $59 million for copyright infringement, which did not factor in to the jury's total damages award. The appeals court told the Manhattan court to reconsider those awards in the wake of the Thursday decision.

The case is Syntel Sterling Best Shores Mauritius Ltd v. TriZetto Group Inc, 2nd U.S. Circuit Court of Appeals, No. 21-1370.

For Syntel: Kannon Shanmugam of Paul Weiss Rifkind Wharton & Garrison

For Cognizant: John O'Quinn of Kirkland & Ellis

Read more:

Cognizant, TriZetto announce $854 million trade secret verdict against Syntel

Cognizant sued by Syntel unit following TriZetto acquisition

(Reporting by Blake Brittain in Washington)