RICHMOND, Va. — In a major legal reversal, the Court of Appeals of Virginia has overturned a staggering $2 billion jury verdict initially awarded to Appian in its trade secret lawsuit against competitor Pegasystems. The court upheld the finding of trade secret misappropriation but mandated a retrial on both liability and damages, citing procedural errors by the trial court.
Appian, a prominent player in the business process management (BPM) software arena, had accused its competitor Pegasystems of stealing trade secrets by covertly hiring a former employee with insider knowledge and accessing proprietary software demonstrations. The controversy reached a boiling point when Pegasystems’ head of competitive intelligence switched to Appian and revealed these clandestine operations, prompting the original lawsuit in Virginia state court in 2020.
Following a seven-week trial in spring 2022, the jury ruled in favor of Appian, awarding $2 billion in damages. However, Pegasystems appealed, challenging whether Appian’s software secrets were indeed proprietary and disputing the jury’s calculations and numerous evidentiary decisions. The appeal gained significant attention in the legal and business communities, drawing four amicus briefs, particularly focused on critiques of the damages jury instruction.
The appeals court found the jury instructions on damages problematic because they improperly relieved Appian of the burden to prove that Pegasystems’ profits stemmed directly from the misuse of the trade secrets. Consequently, this aspect of the trial contradicted established principles under the Virginia Uniform Trade Secrets Act, which clearly assigns the burden of proving damages to the complainant.
The faultiness of the trial court’s reliance on the Restatement (Third) of Unfair Competition was noted, where the court misinterpreted the guidance on calculating damages linked to misappropriated trade secrets. The decision further emphasized the importance of aligning with the legislative intent in cases where state laws deviate from uniform acts.
The retrial will involve reevaluating not only damages but also liability, as the appeals court flagged key errors in evidence admission during the initial proceedings, notably the exclusion of Pegasystems’ software. The exclusion significantly hindered the defense, as it hampered Pegasystems’ ability to demonstrate that their product development was independent of any alleged trade secrets.
Moreover, during the original trial, the number of people who could access the purported trade secrets and the nature of such access were ruled irrelevant by the trial court—an assessment the Court of Appeals contested. The appeals court underscored the relevance of these factors in determining both the relative secrecy and the security measures surrounding sensitive information.
While the decision does not rewrite the fundamentals of Virginia’s trade secrets laws, it reinforces critical standards regarding the burden of proof for damages and the parameters for lawful evidence introduction. These principles mirror broader intellectual property rights enforcement, where proving direct causation of damages is pivotal.
The future proceedings will likely receive close scrutiny to see if Appian will push this matter to the Supreme Court of Virginia or accept the verdict and prepare for the new trial. Last year, Appian secured a $500 million judgment preservation policy, ensuring a significant compensation regardless of the retrial’s outcome. This ongoing legal battle underlines the fierce competition in the BPM software sector and the crucial nature of trade secret protections in the tech industry.
Industry observers and legal experts will be watching carefully, as the outcomes could influence litigation strategies and corporate policies on handling competitive intelligence and internal security protocols in tech companies nationwide. This case serves as a stark reminder of the high stakes involved in protecting intellectual property in an increasingly digital economy.