The Court of Appeals of Virginia recently reversed a $2 billion jury award for trade secret misappropriation under the Virginia Uniform Trade Secrets Act (VUTSA) in Pegasystems Inc. v. Appian Corp., No. 1399-22-4, 2024 WL 3571808 (Va. Ct. App. July 30, 2024). Pegasystems allegedly misappropriated Appian's trade secrets into its competing software platform in the business process management (BPM) industry that automated processes such as fulfilling orders or opening new customer accounts.

While the VUTSA does not include a “particularity” requirement for identifying the purported trade secrets, the Court held that the plaintiff nonetheless was “still required to plead and present its case . . . with enough clarity that Pega is adequately informed of what it is defending.”

            The need for such clarity is paramount in the trade secret arena because the scope of a trade secret may be quite broad, while at the same time there is no requirement that the holder must file with an administrative body either a written description or an example of the material to be protected, in contrast to patent and copyright law, respectively. See 35 U.S.C. §§ 111-112; 17 U.S.C. § 411. Only the plaintiff knows what it considers to be secret—and the defendant cannot harness a defense without gaining a meaningful description of the violation. See Inteliclear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 658 (9th Cir. 2020) (to “prove ownership of a trade secret, plaintiffs ‘must identify the trade secrets and carry the burden of showing they exist'” (quoting MAI Sys. Corp. v. Peak Comput., Inc., 991 F2d 511, 522 (9th Cir. 1993))). Similarly, the factfinder needs to know the alleged secrets' precise contours so it can determine whether the information was generally known and reasonably protected, as well as to assess its worth. See Trandes Corp., 996 F.2d at 661 (a plaintiff must “describe the subject matter of its alleged trade secrets in sufficient detail to establish each element of a trade secret”).

The Court found that the contours of Appian's five “architecture and design” trade secrets (namely, Smart Services, Custom Data Types, Ease-of-Editing Functionality, Out-of-the-Box Ability to Deploy Applications to Mobile, and Out-of-the-Box Integrated Social View of Worklist and Tasks) were sufficiently delineated by expert witness testimony at trial.

With respect to evidence that was excluded at trial regarding the number of people with access to Appian's platform, however, the Court stated that “while not dispositive, the number of people with access to Appian's trade secrets is relevant because it goes to multiple issues in the case—specifically, whether Appian took reasonable efforts in protecting its secrets and whether such secrets were generally known and readily ascertainable.”

            Thus, while the number of people with access to information is not, in isolation, determinative of the information's trade secret status—such evidence is hardly irrelevant. To the contrary, who is given access to such information, and in what numbers, are among the most important factors in assessing both whether the information was generally available and the reasonableness of efforts to maintain its secrecy. Turret Labs USA, Inc. v. CargoSprint, LLC, No. 21-952, 2022 U.S. App. LEXIS 6070, at *5 (2d Cir. Mar. 9, 2022) (listing cases); see MicroStrategy Inc., 268 Va. at 264 (inquiries “require[ ] an ad hoc evaluation of all the surrounding circumstances”).

Accordingly, the Court reversed the judgment for the VUTSA claim and ordered a new trial over whether Appian had “forfeited its trade secret protection by broadly sharing the information with thousands.”

Also, with respect to the jury instruction for the unjust enrichment damages, the Court disapproved the which used a burden-shifting approach of the following instruction:

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.

The Court found that this framework impermissibly “shifted the burden” to Pegasystems to prove sales were not related to the wrongdoing and relieved Appian of its burden to prove proximate cause for the misappropriation.

Put another way, for damages purposes, Appian only had to establish Pega's enrichment—it did not have to prove “unjust” enrichment. Moreover, by permitting Appian to use all of Pega's sales as damages, the instruction removed any causation nexus between the sales and the misappropriation.

Because “VUTSA's plain language places the burden of proving unjust enrichment damages caused by misappropriation on the complainant,” only damages “caused by misappropriation” are recoverable. Furthermore, the Court noted that the model uniform act does not speak in terms of “proving” damages, and the statutory language “[i]f a complainant is unable to prove” is unique to VUTSA. This deviation from the model, uniform act to add language was a “deliberate and intentional” choice that “militate[d] against relieving Appian of its burden of proving proximate cause.”

The Court further noted that the Restatement (Third) of Unfair Competition did not authorize a plaintiff to sidestep its burden of proof as to proximate cause between sales and the misappropriation. “In short, nothing in the Restatement methodology relieved Appian of its obligation to prove causation in the first instance.” See also Iconics, Inc. v. Massaro, 266 F. Supp. 3d 461, 467 (D. Mass. 2017) (“[i]n order to establish defendants' unjust profits, plaintiffs must ‘do more initially than toss up an undifferentiated gross revenue number; the revenue stream must bear a legally significant relationship to the infringement” (citations omitted).

Because plaintiff has the burden of proving not just any sales, but sales “attributable to the trade secret,” the Court remanded for a new trial so that the jury could be properly “instructed that the complainant bears the burden of proving proximate cause between the misappropriation and any unjust enrichment damages.”

Appian stated in a press release that it will appeal the ruling to the Supreme Court of Virginia.  

 Thomas P. Howard, LLC is experienced in trade secrets nationwide including in Colorado.