FORT LAUDERDALE BUSINESS LITIGATION: APPELLATE COURT REVERSAL OF TRADE SECRET JURY VERDICT

The Court of Appeals of Virginia recently reversed a massive verdict in a trade secret misappropriation case involving two business competitors. In Pegasystems, Inc. v. Appian Corporation, ___ S.E.2d. ____, 2024 WL 3571808 (Va. 2024), the jury returned a verdict of more than $2 billion, the largest trade secret verdict in Virginia history. However, the Court of Appeals of Virginia reversed based on four errors committed by the trial court. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Appian Corporation and Pegasystems, Inc., are competitors that both produce and sell business process management software. Pegasystems hired an outside consultant that worked with Appian to gain access to Appian’s software and study it. Appian discovered Pegasystems’ scheme and filed suit for trade secret misappropriation by claiming Pegasystems unlawfully gained access to its software, incorporated several features of its software into Pegasystems’ own software, and used knowledge of its software’s weaknesses in Pegasystems’ marketing. The case went to trial and the jury returned a verdict of $2,036,860,045 in favor of Appian.

The trial court’s main error was including a jury instruction that improperly shifted the burden of proof for proximate causation of damages to Pegasystems. Appian requested unjust enrichment damages; a common form of damages in trade secret lawsuits that are based on the defendant’s revenues or profits generated from using the ill-gotten trade secret. The relevant jury instruction required Appian to prove trade secret misappropriation, required Appian to establish Pegasystems’ general sales, and then shifted the burden to Pegasystems to prove the portion of its sales that were not attributable to the trade secret misappropriation. The appellate court determined this “framework impermissibly ‘shifted the burden’ to Pega[systems] to prove sales were not related to the wrongdoing and relieved Appian of its burden to prove proximate cause for the misappropriation” because Appian only had to prove enrichment rather than unjust enrichment.

The trial court also improperly excluded evidence about Pegasystems’ revenues generated from the sale of products that did not use Appian’s trade secrets. As a result, the jury only considered evidence about Pegasystems’ total sales when deciding damages even though a significant portion of those sales had no relation to Appian’s trade secrets.

The trial court improperly excluded additional evidence regarding Pegasystems’ independent development of software features that Appian claimed were misappropriated. The evidence was excluded from trial because Pegasystems wanted to present the software to the jury using a laptop that was not produced during the discovery phase of the case. The appellate court reversed because the medium in which the evidence is presented does not impact its admissibility.

Finally, the trial court improperly excluded evidence that Appian’s software was accessed by thousands of people. The trial court excluded the evidence because it was not dispositive on the issues of whether Appian’s software qualified as a trade secret. The trial court’s ruling was error because the evidence does not need to be dispositive if it is relevant to the issue.

Pegasystems, Inc. shows the complexities and difficulties that can arise in trade secret litigation, even after one party prevails over the other. Determining relevant evidence and damages in trade secret litigation requires in depth analysis to avoid pitfalls such as those resulting in the Pegasystems, Inc. reversal.

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.