The Justice Department will intervene in a False Claims Act suit against Symantec Corp., which allegedly over-charged the government for hundreds of millions of dollars worth of software and related products.
According to the Justice Department, Symantec “knowingly provided the United States with inaccurate and incomplete information” about its prices, and charged the government more than commercial customers in violation of its contract with the General Services Administration.
The penalty for Symantec, whose products include Norton Antivirus, Vertias and VeriSign, may be steep. The government initially estimated damages of $145 million, according to the company’s annual 10-K report filed with the U.S. Securities and Exchange Commission in May.
“This lawsuit demonstrates the government’s commitment to ensuring that the companies it does business with act with integrity,” said assistant attorney general Stuart Delery in a news release on Tuesday. “When the United States spends taxpayer dollars based on contractors’ representations about their business practices, we expect to be given complete and accurate information.”
Symantec spokesman Noah Edwardsen said the company did not do anything wrong. “At Symantec we take compliance rules seriously and believe we followed all GSA Schedule and state contract program rules,” he said via email. “We have fully cooperated with the government throughout its investigation, which Symantec was alerted to and first publicly disclosed in June 2012. We deny any wrongdoing and are confident the prices paid by the government for Symantec products and services were fair and reasonable.”
Symantec employee Lori Morsell brought the suit in U.S. District Court for the District of Columbia in 2012, alleging that the company defrauded the federal government as well as the states of California, New York and Florida by failing to monitor and disclose the “deep discounts” it offered to other customers.
Symantec was obligated to do so, she said, because its contract, which ran from 2007 to 2012, included a price reduction clause—a typical provision requiring a contractor to give the government the best price for its product, and not to offer other customers steeper discounts for comparable purchases.
Morsell uncovered “many examples of deep discounts to commercial customers, given more frequently than disclosed,” according to the complaint, filed by London & Mead name partner Christopher Mead.
Mead, who did not immediately respond to a request for comment, is a veteran in bringing such cases. He represented whistleblower Paul Frascella in a similar case against Oracle Corp. that also involved allegations of failing to disclose software discounts. That case settled in 2011 for $200 million. He also represented whistleblower James Hicks in another Oracle software discount case that settled for $99 million in 2006.
False Claims Act violations carry a potential penalty of three times the government’s damages, plus $11,000 per false claim. Successful plaintiffs get a bounty—up to 30 percent of the total recovery.
For Symantec, DOJ’s decision to intervene in the case is bad news. The government intervenes in only 20 to 25 percent of False Claims Act suits but, when it does, it is successful 95 percent of the time, according to government-contracts lawyers.
Software makers have been particularly vulnerable to so-called qui tam suits because unlike say, a helicopter, software is cheap to manufacture, with most of the costs in the initial development. The result: lots of room to discount on prices. For example, according to the complaint, Symantec did not disclose to the government that it offered some commercial customers “legacy” discounts, allowing them to pay rock-bottom prices even after their contracts to purchase a minimum volume of software had expired.
Symantec reported that it sold the government $222 million worth of software. It also said that after the initial meeting with DOJ in January,” the government’s analysis of our potential damages exposure has fluctuated.” In its annual report, it recorded a $25 million offset to revenue, which it said was “our current estimate of the low end of the range of estimated loss.”