In this 61-page opinion, the Court of Appeals reverses the largest damages verdict in Virginia history
Pegasystems, Inc. v. Appian Corp., Record No. 1399-22-4 (Va. Ct. App. July 30, 2024)
Background. Appian Corporation (Appian) and Pegasystems, Inc. (Pega) offer software platforms to business customers to automate processes. Appian alleged that Pega misappropriated its trade secrets in violation of the Virginia Uniform Trade Secrets Act (VUTSA) to improve its own products and exploit Appian’s weaknesses. Pega could not access Appian’s platform, so it hired a consultant who had access to Appian’s platform through his own employer. The consultant gave Pega demonstrations and documentation that included trade secrets and internal information about Appian’s platform, including details of the platform’s strengths and weaknesses. Pega used this information to enhance its own platform and attack Appian’s weaknesses in marketing materials.
A jury found that Pega had misappropriated Appian’s trade secrets in violation of the VUTSA and awarded damages against Pega of over $2 billion. It also entered judgment against the consultant for damages in the amount of $5,000. The trial court denied Pega’s motion to strike the evidence and set aside the verdict and for a new trial or remitter.
Appian appealed. It claimed that there was insufficient evidence as a matter of law to uphold the jury’s verdict and requested judgment in its favor. In the alternative, it sought a new trial based on the trial court’s improper exclusion of certain evidence and granting of flawed jury instructions. In particular, it argued (1) that Jury Instruction 14, the damages instruction concerning proximate cause, improperly shifted the burden to Pega to prove that Pega’s sales were unrelated to its misappropriation; (2) that the trial court erroneously excluded damages evidence; (3) that the trial court erred in excluding Pega’s software evidence on the ground that it was not on the original laptop used in discovery; and (4) that the trial court improperly instructed the jury that the number of people with access to Appian’s secrets was not relevant. The Court of Appeals rejected Pega’s claim that Appian failed to establish a misappropriation of trade secrets as a matter of law but agreed with Pega that the trial court had committed a number of errors that required it to reverse the judgment as to Appian’s trade secrets claim and remand for a new trial.
Sufficiency of the Evidence. The Court of Appeals agreed with Appian that sufficient evidence supported the jury’s verdict that Pega misappropriated Appian’s trade secrets. Under Virginia law, a trade secret is information that “derives independent economic value…from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use.” But, secrecy need not be absolute. So long as disclosures of a trade secret are made in confidence, they may be covered by the VUTSA. Here, Pega argued that Appian gave independent resellers discretion to disclose its software and shared its secrets without taking reasonable measures to guard them. However, as the Court of Appeals pointed out, Pega had such difficulty accessing Appian’s platform that it had to search for a developer who had access to the system through an independent license. One Pega executive even stated that Appian was “very guarded about their technology so some of this information is impossible come by without access to a system.” Whether a trade secret exists is a question of fact, and Appian provided considerable evidence on this “hotly contested” issue, thus there was sufficient evidence to support the jury’s verdict. Pega also argued that Appian did not identify its secrets with sufficient particularity to distinguish between its trade secrets and publicly available information. The Court of Appeals again disagreed with Pega, finding that Appian’s expert provided testimony that “established the contours” of each secret it claimed was misappropriated.
Jury Instruction 14. The Court of Appeals agreed that the jury instructions improperly relieved Appian of its burden to prove causation between Pega’s misappropriation and any damages. Specifically, Jury Instruction 14 placed the burden on Pega to prove that all its sales were not tainted after Appian proved misappropriation:
For unjust enrichment, Appian is entitled to recover [Pega’s] net profits. Appian has the burden of establishing by greater weight of the evidence [Pega’s] sales; [Pega] has the burden of establishing by greater weight of the evidence any portion of the sales not attributable to the trade secret or trade secrets and any expenses to be deducted in determining net profits.
But, both the VUTSA and Virginia precedent place the burden of proving unjust enrichment damages caused by misappropriation on the plaintiff. Appian was required to establish a causal connection between Pega’s misappropriation, and the damages claimed, and then prove the amount of damages “with reasonable certainty.” Under Jury Instruction 14, however, Appian only had to prove misappropriation and Pega’s sales, not whether those sales were attributable to the misappropriated trade secret. Thus, it was reversable error to give Jury Instruction 14.
Damages Evidence. The Court of Appeals further found that while the jury instructions allowed Appian to submit Pega’s total sales to prove unjust enrichment damages, the trial court then prevented Pega from showing that many of its total sales were not in areas that Pega even competed with Appian. In discovery, Appian had propounded an interrogatory on Pega that sought information related to revenues that were tied to versions of Pega’s software. Pega responded that it did not track revenue based on the version of the product sold. The trial court took this to mean that Pega “can’t breakdown [its] revenue based on lines of business,” and ruled that Pega could therefore not give evidence regarding where its revenue came from. Pega, however, claimed that though it did not track revenue by version, it still tracked revenue by other business sources, and had submitted an expert report doing so. As the Court of Appeals put it, “we do not see any justifiable basis for the trial court’s decision to bar admission of evidence of Pega’s massive revenue from products which had nothing to do with any alleged misappropriation based on the interrogatory response.” The Court of Appeals found the trial court’s error “particularly consequential” given the burden-shifting instruction on damages, and therefore found that it was not harmless error.
Authentication of Software Evidence. In response to Appian’s discovery requests, Pega had produced relevant versions of its platform on a laptop. At trial, Pega sought to introduce this software to the jury to show that many of the functions that Appian claimed were based on information it had misappropriated through its consultant were actually functions that had been added before the consultant was hired. Appian objected, however, because Pega used a different laptop at trial than the laptop on which it had produced the software in discovery. Though Pega argued that the laptop was simply a means to produce its evidence and was prepared to authenticate the software at trial, the trial court agreed with Appian and precluded the evidence. The Court of Appeals reversed, finding that by excluding the software, the trial court “conflated the evidence at issue—software—with the method by which the evidence was to be transmitted in discovery.” Further, Appian had acknowledged that its discovery request only sought software and that it had never objected pre-trial to Pega’s exhibit list, which included entries entitled “Pega Laptop Containing Version 6.3 and subversion (Physical Object” and “Pega Laptop Containing Version 7.1 and subversions (Physical Object).” The Court of Appeals concluded that the trial court abused its discretion in preventing Pega from authenticating the software and the importance of this evidence was such that the error was not harmless.
Evidence Concerning the Number of People with Access to Appian’s Software. The trial court granted Appian’s motion in limine seeking to exclude evidence of the number of people with access to its software. It also gave the jury an instruction that the “number of users of the Appian Platform and Appian Forum licenses are not relevant to any issue in this case, and any evidence as to those numbers should be disregarded.” Pega had argued that this evidence was relevant to show whether Appian took reasonable steps to protect its secrets and whether they were generally known. Even Appian’s expert tested that prospective customers could test the software for free without signing a non-disclosure agreement. The Court of Appeals found that while this evidence is not dispositive, courts have “consistently held that ‘the extent to which the information is known outside of one’s business’ is a ‘factor to be considered in determining whether given information is one’s trade secret.’” Thus, the trial court erred because it prevented Pega from arguing that Appian had “forfeited its trade secret protection by broadly sharing the information with thousands.”