Hexaware moves court to dismiss $500 million US patent suit by Natsoft

Carlyle-backed Hexaware, which re-entered Indian bourses in February, has argued that the inventions at the centre of the dispute amount to abstract ideas rather than genuine technological innovations.

“For more than 150 years, the Supreme Court has held that patents cannot protect laws of nature, natural phenomena, and abstract ideas because these are the basic tools of scientific and technological work," read a 12 December Hexaware court filing in support of its plea to dismiss Natsoft’s case.

“Using ‘computers to compute’ is not a patent-eligible ‘invention’," read the filing.

Hexaware filed a motion to dismiss Natsoft’s case on 12 December, followed by a separate filing on 19 December seeking to halt discovery pending the court’s decision. Mint has seen copies of both filings.

Privately held Natsoft filed its lawsuit against Hexaware in an Illinois district court on 23 September, alleging that Hexaware used application modernization software whose functioning was covered by nine patents developed by Updraft, an IT services company Natsoft acquired in 2024. The company claimed Hexaware marketed these products for both application modernization and GenAI use cases. Application modernization refers to the practice of updating older software systems.

Natsoft is represented by Maxson Mago & Macaulay, LLP, and Shelhoff Canfield & Chin LLC. Hexaware is represented by Wilson Elser Moskowitz Edelman & Dicker LLP.

In its submissions, New Jersey-based Hexaware said Natsoft’s complaint merely describes the software development life cycle (SDLC), a standard process for creating software that includes planning, designing, developing, and maintaining software tools.

“The Complaint’s descriptions regarding the Accused Products comprise statements allegedly made publicly by Hexaware that do no more than describe the various stages of the SDLC (software development life cycle) as implemented for modernizing legacy code. These statements mimic the generic and vague elements of the asserted claims," said Hexaware.

For Hexaware, which follows a January-December fiscal year, damages of $500 million would amount to nearly four times its net profit of ₹1,174 crore ($132 million) in the last fiscal year. The company ended the year with revenue of $1.43 billion, up 14% year-on-year.

Natsoft is a New Jersey-based IT services company with about 2,000 associates, providing back-end IT services and managing customer support for roughly 500 clients globally.

In its filings, Hexaware said all nine patents asserted by Natsoft are invalid, arguing that they cover the “abstract idea" of automatically generating computer code. Hexaware said this activity has traditionally been a manual process and does not constitute a patentable invention.

Hexaware also contended that Natsoft failed to provide sufficient detail on how Hexaware’s products allegedly infringed its patents.

“Plaintiffs’ Complaint does not identify or particularize any alleged confidential information, a basis for any reasonable expectancy of profit, or anything unjust, and, therefore, these claims fail as well," read the filing.

Natsoft, in its own submissions, stated that its affiliate invested $100 million in developing the software products it alleges were stolen and marketed by Hexaware. It also accused Hexaware of knowingly advertising three software products—RapidX, Tensai/ATOP, and Amaze—based on those inventions.

Hexaware has asked the court to halt further investigation while the motion to dismiss is decided, citing cost concerns.

“A stay of discovery pending the decision on the motion to dismiss will conserve judicial and party resources and allow this case to proceed, if at all, on a clear and properly framed set of claims. Plaintiffs will suffer no cognizable prejudice from such a stay, and both parties may avoid significant and potentially unrecoverable costs defending claims that may be dismissed or substantially narrowed," said the 19 December filing.

The lawsuit comes at a challenging time for Hexaware. The company slipped two places in Indian IT’s pecking order last year and has been facing lower revenue and project delays from two of its top accounts, including Fannie Mae and Freddie Mac.

An industry expert said the dispute reflects a broader shift in software development practices.

“From an industry perspective, this case also reflects a broader tension around legacy software patents being tested against modern AI and automation-led development practices," said Phil Fersht, chief executive of HFS Research, a Massachusetts-based research firm.

As automation tools gain traction in the tech services industry, a growing share of software modernization work is being automated, reducing employee billings and overall revenue. Companies, as a result, are becoming increasingly protective of their inventions as they seek to defend their turf against peers.

The case follows years of similar lawsuits involving larger Indian IT firms. In 2023, after prolonged litigation, a US court ordered Tata Consultancy Services (TCS) to pay $140 million to Epic Systems after finding that some TCS employees had stolen Epic’s software.

Separately, Cognizant and Infosys remain locked in a legal battle over alleged misappropriation of trade secrets and anti-competitive behaviour related to their healthcare software products.