Pegasystems Says $2 Billion Trade Secrets Loss Lacked Secrets

A $2 billion jury verdict against Pegasystems Inc. should be reversed because none of Appian Corp.'s secrets it allegedly stole legally qualified as trade secrets, Pegasystems told a Virginia appeals court.

“This is a trade-secret case with no secrets,” Pegasystems said in its opening brief in the Virginia Court of Appeals filed Monday.

The software maker also alleged that faulty jury instruction, evidentiary rulings, and damages analyses should invalidate the May 2022 verdict. Appian failed to prove causation between alleged theft of the secrets and Pegasystems sales while the court excluded evidence of other potential causes driving Pegasystems’ sales, the brief said.

Pegasystems hopes to trim, if not overturn, a historically massive trade secrets award, though attorneys have said it faces an uphill climb to overrule a jury ruling on complex, fact-intensive questions. But some attorneys also said Virginia trade secrets law doesn’t address when a court can shift the plaintiff’s burden of proving sales stemmed from theft to the defendant, forcing it to prove which didn’t.

Pegasystems’ appeal said Virginia law requires plaintiffs to prove damages caused by misappropriation of secrets. That, it said, forecloses burden-shifting by the court, as it “wasn’t enough for Appian to prove only misappropriation plus Pega’s total sales,” but also what share of sales were caused by the alleged theft.

Appian in 2020 filed suit in Virginia state court against Pegasystems and Youyong Zou, a defense contractor who used Appian while coordinating with Pegasystems. Pegasystems found Zou by asking a recruiting agency to find someone with access to Appian software but no loyalty to the company. In emails, executives labeled Zou as “our spy” and said not to mention Zou’s name in broadly distributed emails.

Pegasystems employees—including CEO Alan Trefler—set up various fake identities to gain access to marketing materials meant for prospective customers. Appian portrayed Pegasystems as a declining, increasingly obsolete legacy player in the cloud enterprise platform software field, needing to cheat to retain relevance.

Pegasystems argued at trial that more than 80% of the sales claimed as unjust enrichment didn’t involve competition between the companies. It also ridiculed the idea that a two-page marketing document relying on secrets could sway prospective customers like Bank of America Corp., Amazon.com Inc., the US Air Force, or the US Census Bureau, as Appian argued.

Damage without a Cause

To qualify as a trade secret, proprietary information must be commercially valuable and there must be a reasonable effort to conceal it. In its appeal, Pegasystems argued Zou lacked inside information, experience working at Appian, or special access. Tens of thousands of Appian users and free trial recipients had access to the same information, it said.

The brief also went on to say the court excluded evidence that the information was widely exposed, and instructed the jury that the number of people exposed was “not relevant at all.” Pegasystems also said Appian didn’t identify key trade secrets and which ones were stolen with enough particularity.

The court also excluded Pegasystems’ software from evidence, “depriving Pega of the best evidence to show the jury the functions pre-dated Zou or differed from Appian’s,” the brief said. It said the exclusion was based on a rule that to be admissible, software must reside on the same physical hardware on which it was produced to the opposing party—a rule Pegasystems claimed doesn’t exist.

Pegasystems also said the court misread the Restatement of Unfair Competition, the basis for its damages burden-shifting. It said the burden-shifting described there only applied to deducting expenses from revenue to yield profits, and separating what portion of particular sales stemmed from an intellectual property violation. It doesn’t let plaintiffs avoid the burden of proving which sales were implicated at all, it said.

Gentry Locke and Orrick, Herrington & Sutcliffe LLP represent Pegasystems.

The case is Pegasystems Inc. v. Appian Corp., Va. Ct. App., No. 1399-22-4, Opening brief 2/6/23.