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Satyam Corporate Governance at Stake

May 19, 2008

India’s leading IT company Satyam Computer services is facing charges of Fraud by UPaid in a Patent Dispute involving hundreds of millions of dollars.Here is the sequence of events that has happened in the last 12 years with Upaid.

Upaid awards contract to Satyam for software development. 20 Satyam employees designated as “inventors” – Involved in the core architecture and design of the external platform contributing to Upaid’s inventions. Upaid files a provisional patent application. Satyam to relinquishes all claims to the ownership of such intellectual property rights.All individual inventors had to give their individual enduring duties of disclosure and candour to the USPTO, by way of a formal declaration under oath for patent to be formally granted.

947 Patent granted to Upaid – Combined declaration with signature of 20 inventor employees by Satyam in Nov 1999 was filed.

In June 2005, Upaid files patent infringement proceedings against Qualcomm and Verizon. Two Satyam employees deny signing the employee assignments or combined declaration. Upaid alleges that is has the evidence of the forged signatures of two Satyam’s employees. UPaid drags Satyam to Court of Law in Texas, USA but Satyam appeals in the high Court of London, which was dismissed last week and London court grants permission for the Texas court to proceed on the said matter.

Implication on Satyam Computers:
Out of court settlement – Questions araise on corporate governance at Satyam [Their could be more forgeries that Satyam may have done with other clients]
Negative outcome – Apart from Corporate Governance, Satyam’s balancesheet may bleed as Upaid is talking about $ 1 Billion in the lawsuit.
Positive Outcome – No impact on balance sheet + Reputation preserved.

After going through various reports we believe that UPaid may have the required ground. However it is too early to say anything. Historically [since 1999], Satyam always traded at a discount to Infosys because of Poor Management practices and lack of transparency [Recall the Rs 600 crore IndiaWorld deal with Sify, then Satyam’s subsidiary company ?]

Reduce Satyam Computers from your folio.

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