Appeals court reverses $2B judgment for Appian

The corporate espionage civil case between rivals Appian and Pegasystems is heading back to court, the Virginia Court of Appeals ruled Tuesday. The three-judge panel ordered a new trial, saying that Appian was improperly relieved of the burden of proving that Pega financially benefited from misappropriating Appian’s trade secrets.

In May 2022, McLean cloud computing firm Appian won a record-setting $2.03 billion award against Massachusetts-based Pega in Fairfax County Circuit Court, based on allegations that Pega used multiple methods to spy on its rival over eight years, from 2012 through May 2020. In a statement, Appian said it plans to appeal Tuesday’s decision to the Virginia Supreme Court.

In the original lawsuit, Appian claimed that Pegasystems hired Youyong Zou, an employee of a government contractor using Appian software, to provide Pega with access to the backend of that software. Pega says, however, that the software was available to Appian users.

Appian included Zou, a software architect, in the lawsuit, and he was ordered to pay Appian $5,000.

In the 2020 complaint, Appian claimed that it lost 201 customers and claimed $479 million in “unjust enrichment of Pega” between 2012 and 2020, but Pegasystems’ attorneys argued that the information gained by the company was not actually “trade secrets” because some of it was sourced to publicly available materials, according to the trial transcript.

Tuesday’s appeals court opinion authored by Judge Frank K. Friedman rejected Pega’s claim that “Appian failed to establish misappropriation of any trade secret as a matter of law. However, we agree with Pega that the trial court erred in granting [a jury instruction], which relieved Appian of its proper burden to prove causation between the alleged misappropriation and any damages.”

Moreover, the opinion reads, Appian was allowed to use Pega’s total sales during the eight-year period to prove unjust enrichment — but the trial court improperly blocked Pega “from showing that many of Pega’s total sales were in areas in which Appian did not even compete with Pega.”

The trial court also “abused its discretion” by not permitting Pega to attempt to authenticate software evidence during the trial. Instead, the circuit court judge excluded software because it was on “a different laptop than provided in discovery.” Finally, the appeals decision says that the trial court “should refrain from instructing the jury that the number of people with access to Appian’s platform is ‘not relevant.'”

The opinion concludes with an order for a new trial consistent with the appeals court’s ruling.

“We will appeal the ruling to the Supreme Court of Virginia and will seek to reinstate the verdict,” Appian said in a statement Tuesday. “We remain confident that the evidence of misappropriation and our right to corresponding damages will be properly addressed by Virginia courts.”

A Pega spokesperson said in response to the decision, “We are extremely pleased by today’s decision throwing out an award we believe was never rational. As the unanimous decision stated, ‘The trial court committed a series of errors that require us to reverse the judgment as to Appian’s trade secret claims.’ 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.

“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.”