Court overturns Appian’s $2bn trade secrets award against Pegasystems

Trial problems

Judge Friedman rejected Pega’s claim that Appian failed to establish misappropriation of trade secrets as a matter of law.

But his opinion agreed with Pega’s claims that a series of evidential errors and missteps in instructions given to the jury required a re-trial.

The appeals court found that the trial court had wrongly relieved Appian of its “proper burden to prove causation” between the alleged misappropriation and the damages it was seeking.

The court also improperly prevented Pega from demonstrating to the jury that many of Pega’s total sales were in areas in which Appian did not compete with Pega.

Chief executive officer Alan Trefler had intended to testify that more than 50% of Pega’s income was from products that did not compete with Appian, and that Pega’s software offers features unrelated to Appian’s trade secrets.

Pega had also intended to argue that Appian’s damages should be significantly reduced to account for sales driven by Pega’s own products and innovations in products that were not sold by Appian.

The result was a presumption that all of Pega’s sales - including product lines that did not use any information associated with Appian’s claimed trade secrets - were made as a result of Pega’s alleged misappropriation of information from Appian.

The burden wrongly shifted to Pega to prove what proportion of sales were not attributable to Appian’s trade secrets, the judge found.

Instead Appian should have been required to prove that the misappropriation of trade secrets caused the damages it was seeking.

The trial court’s ruling to exclude some of Pega’s evidence was “particularly consequential” and it could not be said that it constitutes “harmless error” given the type of evidence excluded and the ultimate award against Pega in excess of $2bn, the judge said.

The Virginia Court of Appeals also found that the trial court abused its discretion by excluding Pega from demonstrating its software -described by Pega as “probably the most important exhibit in the case” – at the trial.

As a result Pega was deprived of giving evidence that could show the functions it was accused of stealing pre-dated its use of the consultant or were different from Appian.

The court of appeals also found that the trial court wrongly instructed the jury that the number of people with access to Appian’s platform was not relevant as to whether Appian had properly protected its trade secrets.

Pega had offered evidence that demonstrated that thousands of people had access to the alleged trade secrets under agreements that it claimed did not identify or put users on notice of trade secrets.

Skyscraper of cards

Pega said in a statement that it was pleased the appeals court had thrown out the $2bn award which it said it never believed was rational.

“This ruling supports our view that the verdict was a result of a flawed trial on many fronts, including that we were prevented from showing that our software never adopted any Appian supposed trade secrets,” the company said.

“As we’ve said from the beginning, the overturned judgment had the structural integrity of a skyscraper of cards, so it is no surprise it has collapsed. We applaud the court for seeing through Appian’s tactics to prevent the jury from hearing critical facts in this case,” it added.

Appian to appeal

Appian said in a statement that it would appeal against the verdict and would seek to “reinstate its judgement of malicious trade secret misappropriation against Pegasystems”.

Despite Pega's claims that there were no "trade secrets" in the case, the Court of Appeals expressly held that Appian presented sufficient evidence to the jury of its trade secrets and that Appian had used reasonable measures to protect those trade secrets, the company stated.

The Virginia jury also found Pegasystems violated the Virginia Computer Crimes Act (VCCA), but Pegasystems declined to appeal that ruling, meaning that the Virginia Computer Crimes Act violation by Pegasystems is confirmed and final, it said.

Christopher Winters, general counsel at Appian said, "We will appeal the ruling to the Supreme Court of Virginia and will seek to reinstate the verdict, and remain confident that the evidence of misappropriation and our right to corresponding damages will be properly addressed by Virginia courts”.

Pegasystems said in a statement on its website that the value of Appian's claims under the VCCA amounted to a "mere $1 award" and that it did not intend to waste the appeal court's time by appealing it.