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11 May 2022PatentsMuireann Bolger

Appian wins historic $2bn verdict in trade secrets dispute

A US court has delivered a record $2 billion jury verdict in favour of tech company Appian’s lawsuit centring on corporate espionage and trade secret misappropriation.

The court in Virginia handed down the verdict on May 9 following a seven-week trial in the case against software company Pegasystems.

Appian sued Massachusetts-based Pegasystems and an individual, Youyong Zou, in May 2020, claiming that Pegasystems conspired to access its trade secrets over an eight-year period, dating from 2012.

According to Appian, the sum represents the largest damages award in Virginia state court history.

The jury also found that Pegasystems violated the Virginia Computer Crimes Act and that Pegasystems’ misappropriation of Appian’s trade secrets was “willful and malicious”.

In a statement issued by Appian this week, general counsel Christopher Winters said:

“We are very grateful that the jury held Pegasystems accountable for its wrongful conduct. We put forward strong evidence that Appian trade secrets were misappropriated by Pegasystems. The award of substantial damages to Appian is entirely appropriate given the nature and extent of what Pegasystems did.”

During the trial, the cloud computing company presented evidence that Pegasystems hired an employee of a government contractor, Zou, to provide the company with access to Appian’s trade secrets.

A spying game

The jury heard how Pegasystems instructed its third-party contracting service to recruit someone who was not “loyal” to Appian. Appian provided further evidence that Zou violated his employer’s code of conduct and his employer’s agreement with Appian by passing trade secret information to Pegasystems.

During the proceedings, Alan Trefler, Pegasystems’ founder and CEO, conceded that it was “inappropriate'' for Pegasystems employees to have hired Zou, who “apparently did things for which he was not entitled.”

The jury heard how the contractor, who was referred to as a “spy” internally at Pegasystems, generated dozens of video recordings of the Appian development environment for use by Pegasystems in compiling competitive materials and evaluating improvements to its platform.

Appian also put forward evidence that Trefler attended and participated in a meeting with Zou and received Appian’s trade secrets.

The contractor’s accrual of videos and documents was then used by Pegasystems to train its sales force to better compete against Appian. The effort was later labelled “Project Crush” within Pegasystems. At one point, a Pegasystems employee reviewing the materials exclaimed that “we should never lose to Appian again,” noted Appian.

The tech company also held that Pegasystems’ product development team reviewed the materials provided by the contractor and changed the course of Pegasystems’ product engineering to exploit Appian technology.

Specifically, Appian put forward documents and testimony that Pegasystems made use of the trade secrets gleaned from the contractor to make improvements with respect to, among other things, ease of use, and social and mobile capabilities in the Pegasystems platform.

According to Appian, it lost 201 customers between 2012 and 2020, and Pegasystems’ was unjustly enriched $479 million as a result.

Pegasystems countered that the information gained by the company should not be categorised as “trade secrets” because some of it was sourced from publicly available materials.

False identities

But Appian also presented evidence that Pegasystems employees used false identities to obtain access to Appian information and trial versions of Appian’s software, which were then used for competitive purposes. Trefler allegedly used an alias, “Albert Skii” to obtain access to Appian information.

One Pegasystems employee was said to have created a fake persona and a company to fool Appian into providing him with access to Appian’s software platform. Other Pegasystems employees obtained access to Appian’s software through Pegasystems’ partners in India, using credentials provided to those partners under licence.

During the trial, Trefler acknowledged that he did not think it was appropriate “for people to access other company’s systems through aliases” and that the Pegasystems employees who gained access to Appian trial software “shouldn’t have done it”.

Plans for appeal

Commenting on the verdict, Appian’s CEO, Matthew Calkins, said: “Appian will never hesitate to defend itself and its IP from competitors where it believes they have acted illegally. I am proud of our legal team for their outstanding work on this case. It was a masterful performance and the jury’s verdict is the result of their efforts.”

Appian was represented in the case by Patterson Belknap Webb & Tyler, led by Adeel Mangi, Muhammad Faridi, and Jeff Ginsberg, and by Holmes Costin & Marcus, led by Ellen Marcus and Sheila Costin. John McNichols, of Williams and Connolly, also appeared in the case on behalf of Appian. Christopher Geyer, Appian’s deputy general counsel for IP & litigation, played a lead role in developing the case and managed the litigation from an in-house perspective.

In a statement released by Pegasystems, the company confirmed that it planned to appeal the verdict. “We strongly disagree with the claims and the verdict, and believe the verdict is not supported by the facts of the case or the law and is the result of significant error,” it stated.

“We plan to vigorously pursue our post-trial remedies and will certainly appeal what we believe is an unjust result. We believe we have meritorious defences that have strong grounds to overturn this, although the appeals process could potentially take years to complete.”

If upheld, the jury’s finding that Pegasystems’ conduct was willful and malicious may entitle Appian to a further award of attorney’s fees under Virginia law.

Pegasystems is not required to pay Appian the amount awarded by the jury until all appeals are exhausted and the judgment is final.

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