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The Virginia Supreme Court (VSC) recently upheld a decision by the Virginia Court of Appeals (VCA) that reversed the largest damages award in Virginia history.1 In a trade secret misappropriation dispute involving software competitors, Appian Corporation v. PegaSystems, Inc., Record No. 240736, a jury in May 2022 awarded more than $2 billion in monetary damages to Appian based upon corporate espionage by PegaSystems (Pega). However, because of certain erroneous evidentiary and legal rulings by the trial court, both Virginia appellate courts have concluded the award could not stand.
Background
Appian and Pega, software companies that sell business process management (BPM) platforms to assist companies with automation of various functions, often competed with each other for the same customers.2 After several years, Appian began to separate itself from Pega and eventually became higher ranked in the industry.3 Pega deployed a former Appian consultant to "spy" on Appian and misappropriate its software so Pega could improve its own BPM product and better compete with Appian.4 The consultant "went to great lengths to conceal his identity, utilized the information he provided for its own financial benefit, and, when he lost access, engaged in efforts to trick Appian into granting it access to the information through its employees' use of aliases and non-Pega credentials."5 Pega gained access to Appian's systems and instructed its employees to ensure Pega's BPM product would mimic Appian's in every possible way.6
Once Appian discovered the scheme, it sued Pega under the Virginia Uniform Trade Secrets Act (VUTSA), alleging misappropriation of trade secrets and unjust enrichment.7 A critical legal dispute at trial involved a jury instruction describing the burden to prove damages under the VUTSA.8 The jury was instructed that Appian need only establish Pega's gross sales during the time of the misappropriation scheme, and the burden then shifted to Pega to prove which of its sales were not tainted by the misappropriation.9 Appian introduced evidence of billions of dollars of sales by Pega during the lifespan of the scheme. However, when Pega attempted to establish which sales were not attributable to the misappropriation, the trial court precluded Pega from introducing certain evidence in its defense based upon a narrow interpretation of one of Pega's discovery responses.10 The VSC affirmed the VCA's decision and held that both rulings – the jury instruction and limitation on Pega's ability to introduce evidence as to sales not linked to the misappropriation – were reversible error by the trial court.11
Though the VSC agreed that the jury's historic damages award must be reversed and remanded to the trial court for redetermination,12 the VSC did not disturb the jury's finding that Pega was liable for trade secret misappropriation. The VSC held that the "VUTSA applies to any information that meets the statutory definition, whether that be computer code, a marketing plan, or even undisclosed and not publicly ascertainable strengths and weaknesses of a product."13 In other words, a trade secret can consist of a broad spectrum of information rather than a company's "secret sauce" and is a fact-specific inquiry.14 The VSC also observed that "[i]t is not much of an inference to conclude that Pega would not have engaged in [the misappropriation scheme] if the information did not have economic value to both Appian and Pega."15
Pega also challenged whether Appian took the requisite measures to protect its BPM software as a trade secret, emphasizing that Appian's product was broadly disseminated to "thousands of developers and countless prospective customers without obtaining express contractual assurances that those with access would not share the information."16 The VSC rejected this argument, concluding that "merely sharing information with others does not preclude it from being a trade secret," and "[s]imilarly, the failure to obtain express assurances from those with whom the information is shared is unnecessary to maintain trade secret protection so long as the facts and circumstances imply that the information is to be held in confidence."17
Conclusion
This case and its historic damages verdict (now reversed and pending remand) clarified the appropriate burden of proof on a VUTSA claim to establish misappropriation damages based on the unjust enrichment of the defendant. But the VSC also addressed other critical aspects of trade secret litigation, reinforcing a somewhat broad interpretation of what can constitute a trade secret under Virginia law and elaborating that whether a company sufficiently protects its trade secrets via implication is a fact-intensive analysis unique to the circumstances of each case.
Footnotes
1. Holland & Knight Trade Secrets Blog, "Virginia Court of Appeals Reverses Historic Trade Secret Verdict," August 5, 2024.
2. Id. at 1.
3. Id. at 1-2.
4. Id. at 2.
5. Id. at 22.
6. Id. at 3-4.
7. Id. at 5.
8. Id. at 15-16.
9. Id.
10. Id. at 14.
11. Id. at 25-26.
12. Id. at 26-29.
13. Id. at 21 (emphasis in original).
14. Id.
15. Id. at 22.
16. Id. at 23.
17. Id. at 23-24 (emphasis added).
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