McLean-based Appian wins $2B verdict in trade secrets lawsuit
Defendant Pegasystems says it will appeal
Appian Corp., a cloud computing firm based in McLean, won $2.03 billion — an amount estimated to be the largest award in Virginia state court history — in a trade secrets verdict against a competitor Monday in Fairfax County Circuit Court.
Appian sued Massachusetts-based Pegasystems Inc. and an individual, Youyong Zou, in May 2020, alleging that Pegasystems used multiple methods to gain access to its trade secrets to better compete with Appian over eight years, beginning in 2012. According to the lawsuit, Pegasystems hired Zou, an employee of a government contractor using Appian software, to provide Pegasystems with access to the backend of that software.
According to evidence presented at the weeks-long trial, an employee had passed trade secret information via video recordings of Appian’s development environments available only to contractors with licenses. Appian also alleged in court that other Pegasystems employees used false identities to get access to trial versions of Appian’s software and obtained further access through Pegasystems’ partners in India.
In an interview with Virginia Business Tuesday, Appian CEO Matt Calkins said that a former Pegasystems employee informed his company in 2020 about the activity. “We were very surprised,” Calkins said. “It is misappropriation. You can see by the size of the award how serious it was. I can tell you that we take our trade secrets and innovations very seriously. We knew immediately it was going to be huge.”
Appian, which Calkins co-founded in 1999 with Chief Technology Officer Michael Beckley, employs nearly 2,000 people in the Washington, D.C., area. In 2020, it logged $304.6 million in revenue and $369.3 million in 2021.
In court, Appian alleged 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.
The Fairfax County jury awarded Appian $2.03 billion for misappropriation of trade secrets in its ruling against Pegasystems, and it awarded Appian $5,000 in damages against Zou. According to his LinkedIn page, from 2012 to 2019, Zou was employed as a senior technical architect by Serco in Reston.
Zou, who is alleged to have worked for Pegasystems between 2012 and 2014, was not found liable by the jury for “willful and malicious misappropriation,” but the company was found liable, according to court documents. Pegasystems was also found liable for computer fraud in violation of the Virginia Computer Crimes Act, but the jury awarded Appian only $1 on that count.
“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,” Lisa Pintchman, Pegasystems vice president of corporate communications, said in a statement Tuesday. “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 defenses that have strong grounds to overturn this, although the appeals process could potentially take years to complete.”
The statement adds that the verdict has “no impact on our products or what we are able to sell and service.”
On Tuesday, shares of Appian rose as much as 38%, and Pegasystems’ stock fell by as much as 45%. Pegasystems will not be required to pay the awarded amount until it exhausts all appeals.
Appian was represented by Adeel Mangi, Muhammad Faridi and Jeffrey Ginsberg from Patterson Belknap Webb & Tyler of New York, and Robert Frank Jr. of Choate Hall & Stewart of Boston represented Pegasystems, while Zou was represented by Wayne Travell of Hirschler Fleischer,