A Fairfax County, Virginia, jury in May 2022 found that Pegasystems Inc. (Pegasystems) misappropriated trade secrets from its competitor, Appian Corp. (Appian), and awarded Appian more than $2 billion in damages – the largest damages award in the history of Virginia and one of the largest ever trade secret verdicts in the country. On July 30, 2024, the Virginia Court of Appeals (VCA) overturned this unprecedented damages award, ruling that the trial court committed a series of legal and evidentiary errors that warranted a new trial.1 One of the trial court's most critical errors was its failure to instruct the jury that plaintiff Appian bore the burden of proving that its damages were caused by defendant Pegasystems' misappropriation of trade secrets.
Appian and Pegasystems are leaders in the business process management (BPM) industry.2 Both companies sell software platforms that enable businesses to generate programs and automate internal processes, such as fulfilling orders or opening new customer accounts.3 Appian contended that Pegasystems hired a former Appian government contractor consultant in order to access and serve as a "spy" to Appian's software and, as a result, that Pegasystems copied Appian's more user-friendly software features and used them to improve its own products. Over a two-and-a-half-year period, Pegasystems paid the consultant for approximately 200 hours of work.4 Pegasystems recorded nearly 100 videos showing the consultant accessing Appian's platform and explaining strengths and weaknesses of the Appian platform's features.5 According to Appian, Pegasystems used the knowledge it obtained about the Appian platform to bolster its own BPM materials.6
Appian filed claims under the Virginia Uniform Trade Secrets Act (VUTSA), Va. Code § 59.1-336 et seq., alleging that Pegasystems misappropriated its trade secrets and was unjustly enriched resulting from its use.7 At trial, the parties disputed the appropriate jury instruction on proximate cause for unjust enrichment damages under VUTSA.8 Over Pegasystems' objection, the trial court instructed the jury that Appian could prove its damages simply by establishing "Pegasystems' sales" during the relevant time frame and that the burden would then shift to Pegasystems to prove that any of its sales were not attributable to the trade secrets it misappropriated:
If you find that plaintiff Appian has proved by greater weight of the evidence its claim for misappropriation of trade secrets against defendant Pegasystems, you must find your verdict for Appian and decide the issue of damages as to Pegasystems. You may award the amount of unjust enrichment caused by misappropriation.
For unjust enrichment, Appian is entitled to recover Pegasystems' net profits. Appian has the burden of establishing by greater weight of the evidence Pegasystems' sales; Pegasystems 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.9
Appian produced evidence that Pegasystems' total sales for the relevant time period amounted to billions of dollars.10 Consistent with the trial court's instructions, Appian stated in closing argument that "the burden is on [Pegasystems]. If they want to show you some of those sales were innocent, right, because it's about some other feature than ours, they have to show that[,]" and further, "remember the shifting burdens, it's their burden to show you any sales they made were innocent."11
Pegasystems attempted to present evidence that much of its sales revenue was from product lines with which Appian did not compete and that were unrelated to Appian's claims.12 However, the trial court barred Pegasystems from introducing sales figures for its different lines of products due to Pegasystems' statement in an interrogatory discovery response that it did not track revenue for different "versions" of its BPM software.13 Pegasystems protested that its representation that it did not track revenue for each version of its BPM software did not mean that it did not track revenue for different products or lines of business.14 Nevertheless, the trial court ruled that Pegasystems had "essentially given up" any such damages defense due to its prior interrogatory response.15
On appeal, the VCA held that the trial court erred when it instructed the jury that Appian was required to establish only Pegasystems' total sales revenue and that the burden then shifted to Pegasystems to prove any part of its sales was not attributable to misappropriated trade secrets.16 The VCA began with the text of VUTSA and concluded that the statute's plain language places the burden of proving unjust enrichment damages "caused by" misappropriation on the complainant [Appian].17 The appellate court then observed that the language of the model Uniform Trade Secrets Act18 adopted by 48 other states "does not speak in terms of the complainant 'proving' damages," but that Virginia expressly codified these terms in its version of the statute to clarify that the burden to "prove" damages is on the complainant.19 The VCA then turned to Virginia case law precedent, explaining that "Virginia law generally places the burden on plaintiffs 'in any case' to 'prove with reasonable certainty the amount of [their] damages and the cause from which they resulted.'"20 The VCA concluded its analysis on the causation issue by noting that the trial court's jury instruction also was not supported by the law of other jurisdictions that do apply a burden-shifting framework to establish unjust enrichment damages in the misappropriation context.21
Additionally, the VCA held that the trial court erred in concluding that Pegasystems' discovery response stating that it did not track revenue for different versions of its BPM software foreclosed the availability of evidence of sales of other product lines.22 The VCA noted that the trial court missed the distinction between tracking revenue for different products and different versions of the same product.23 Consequently, it was an error for the trial court to preclude Pegasystems from introducing evidence to prove that much of its revenue was not attributable to products utilizing trade secrets.24
Concluding that the trial court's jury instruction contravened the VUTSA's express language and Virginia case law and misapplied the burden-shifting framework applied in other jurisdictions and described in the restatement, the VCA reversed judgment on Appian's trade secret claims and remanded for a new trial25 "in which the jury is to be instructed that the complainant bears the burden of proving proximate cause between the misappropriation and any unjust enrichment damages."26
This historic and now-reversed27 verdict serves as an important reminder to trade secret litigants as to the burden plaintiffs can have in demonstrating damage causation from misappropriation. Simply showing the defendant's sales – without some linkage to the misappropriated material – proved fatal to upholding Appian's $2 billion award here. With Virginia's version of the Uniform Trade Secret Act containing different and more specific language regarding a plaintiff "proving" damages, the applicability of this ruling more generally remains to be seen.
Notes
1 Pegasystems Inc. v. Appian Corp., Record No. 1399-22-4, (Va. Ct. App. Jul. 30, 2024).
2 Id. at 2.
3 Id.
4 Id. at 4.
5 Id.
6 Id. at 7.
7 Id. at 5.
8 Id. at 14.
9 Id. (Trial Court Jury Instruction 14).
10 Id.
11 Id. at 14-15.
12 Id. at 15.
13 Id.
14 Id. at 15-16.
15 Id. at 15.
16 Id. at 30-31.
17 Id. at 32-33 (quoting Va. Code § 59.1-338(A) ("Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation … . If a complainant is unable to prove a greater amount of damages …" (emphasis in original))).
18 The federal Defend Trade Secrets Act (DTSA) – which was not a claim in this Virginia state court action – also includes the "caused by" language for actual losses and unjust enrichment. See 18 U.S.C. § 1836(b)(3)(B)(i)(I)-(I).
19 Id. at 33.
20 Id. at 34.
21 Id. at 35-36.
22 Id. at 44.
23 Id. at 42.
24 Id. at 44.
25 The VCA also reversed and remanded for a new trial on the issue of liability on, among other grounds, that evidence was excluded as to the voluminous number of users with access to Appian's alleged trade secrets. Id. at 40 n.21; 54-60.
26 Id. at 40.
27 Appian has the right under the Virginia rules to petition the VCA for a rehearing and thereafter notice an appeal to the Supreme Court of Virginia.
