Pega response to Appian lawsuit

The facts about Appian v. Pega 

In 2020, Appian sued Pega in a Virginia county court based on a claim by Appian’s current head of competitive intelligence that, when he worked at Pega in 2012, he had hired a consultant to demonstrate Appian’s widely available product.

Appian claims these demonstrations included “trade secrets” that Pega then copied, even if readily observable or already present in Pega’s products – making this a trade secrets case with no secrets.

Appian also asserted these demonstrations prevented Pega from becoming suddenly “obsolete” in October 2013, and that all of Pega’s revenue from 2013-2020 was “unjust.” Preeminent experts in intellectual property law have characterized the court’s jury instruction as “deeply flawed” and noted that its decision “flies in the face” of existing law.

Pega strongly disagrees with the claims and the verdict in Appian v. Pega. The appeals process is ongoing, and both parties presented oral argument before the Court of Appeals of Virginia on November 15, 2023. The court hasn’t given a timeframe for its opinion to be issued. As a reminder, after that, there could be a request to the Court of Appeals to rehear the case, or a further appeal to the Supreme Court of Virginia. Importantly, there are no restrictions on any of Pega’s products, now or in the future.

Previous Statements

November 16, 2023: Email to Pega employees on the appeal arguments

Hi all,
 
Yesterday, I was in Virginia as we presented our appeal arguments in the Appian v. Pega case in person before the Court of Appeals of Virginia.  As you know, we’ve consistently said we strongly disagree with the claims and the verdict in the case.
 
I observed the three judges as being well prepared and knowledgeable on our appeal issues.  I was really pleased with the level of engagement as well as the thoughtful and in-depth questions posed by the panel of judges.  These are my non-legal impressions, and we certainly can’t predict any outcome before the written opinion is published.  The Court hasn’t given a timeframe for its opinion to be issued, and, as a reminder, after that, there could be a request to the Court of Appeals to rehear the case, or a further appeal to the Supreme Court of Virginia.  An audio recording is available from the court on their website if you’d like to listen to the proceedings (case 1399-22-4, Pegasystems Inc. v. Appian Corp, November 15, 2023).   
 
If you get questions from clients or partners about the hearing, you can forward this email to them or send an email to [email protected].
 
Thank you for your continued commitment to our clients and to each other!
 
Ken

Team Pega,

I wanted to share another positive development in the Appian case.

Unsurprisingly, the case has the attention of trade secret experts. On Monday, three prominent voices in the intellectual property (IP) space – a leading legal association, as well as two renowned law professors – shared their views of the case in court filings. Their impartial perspective is important: their motivations aren’t about helping Pega, but about preventing dangerous legal precedents this judgment could set if it were allowed to stand.

The American Intellectual Property Law Association (AIPLA) – a national organization of IP lawyers – focused on the trial court erroneously instructing the jury, saying:

• “In what can be an emotionally-charged environment for trial, it is particularly important that the jury be instructed in clear and unambiguous terms.”
• The trial court’s instruction was “not consistent with [Appian’s] burden to prove causation” for their damages claims, which “makes the instruction improper.”

In addition, Professors Pamela Samuelson and Mark Gergen – two of the nation’s preeminent IP legal scholars – wrote that:

• The court gave the jury an instruction that was “deeply flawed,” and that it engaged in a “glaring error” that “overlooked [a] basic requirement” of trade secrets law.
• They also said that “the court’s decision flies in the face” of the law.

It’s gratifying to see these experts making some of the same key points we made in our appeal about the errors in the case. You can read these filings in full on our website (www.pega.com/appian-lawsuit-statement). As with our appeal, feel free to share these with clients and/or partners who may have questions or who you think would be interested in seeing this information.

Thanks,

Ken

Team Pega,  
 
I wanted to update everyone on an important milestone in the Appian case.  
 
Yesterday we filed our appeal with the Court of Appeals of Virginia. This allows us to share – in detail – the reasons we feel this unprecedented ruling is indefensible. As legal documents go, I think you’ll find it to be a compelling and, at times, shocking read – one that’s free from Appian’s theatrics. We’ve continually expressed confidence in the strength of our appeal, and you’ll see why after reading the document and summary below. 
 
Feel free to share this information with any clients or partners who may still have questions. We think anyone reading this will come to the same unmistakable conclusion we did – that the case contains little more than sensationalism, and the judgment is the result of factual and legal errors and must be overturned. 

These documents, and our past communications about the lawsuit, are available on www.pega.com/appian-lawsuit-statement. This marks a critical step in righting this wrong, and we’ll continue to update you on any major developments as we move through the process.  
 
Thanks,  
Ken

Appian v. Pegasystems: Summary of Pega’s Appeal

Case background 
Appian sued Pega in a Virginia county court for misappropriating ‘trade secrets’ between 2012-2014. Back in 2012, Pega’s then head of competitive intelligence (now in that same role at Appian) engaged a consultant to demonstrate Appian’s widely available product. Appian claimed these common demonstrations included ‘trade secrets’ and that Pega copied some of the features into its own products to save Pega from suddenly becoming ‘obsolete and irrelevant’ in 2013.  
 
But as Pega’s appeal makes clear, not only were most of these ‘secrets’ readily observable to outsiders, they were already present in Pega’s products. Nonetheless, numerous errors by the court fueled a jury finding in favor of Appian with the largest award in Virginia court history. 

Below is a summary of some of the key errors in this egregious judgment detailed in Pega’s appeal filing: 
 
Appian’s claims don’t qualify as ‘trade secrets’ 
Appian made its platform and accompanying features available to thousands upon thousands of people without any confidentiality requirements and often without even knowing their identities. The company also gave explicit permission to software resellers – so many that it lost count – to freely demonstrate to anyone they wished. Potential customers were also free to take unlimited screenshots and videos of these demos and to share them however they liked. In doing so, Appian failed the basic threshold requirement of keeping a ‘trade secret’ secret, forfeiting the right to legal protection. By allowing the verdict to stand despite the absence of any trade secrets, the trial court committed a fundamental error in interpreting the law. 
 
The court improperly stopped the jury from hearing crucial evidence 
The trade secret mistake was just one of numerous errors. For example, Pega was also prevented from demonstrating earlier versions of its own software. This would have let jurors see for themselves that Pega long before had the features Appian claimed were copied. In addition, the court stopped the jury from learning that most of Pega’s business is unrelated to Appian’s claims. 
 
The court flipped the law on proving damages on its head 
Compounding these errors, the court adopted an unprecedented (and incorrect) approach to how the jury should consider damages. Virginia's trade secrets law requires Appian to prove the alleged misappropriation caused the damages Appian sought. Instead, the court only required Appian to point to the amount of Pega's total revenue over an eight-year period – and then moved the burden to Pega to prove that revenue was not subject to any damages. This wrongly presumed every penny of Pega’s revenue during that time was driven by Appian’s ‘secrets,’ even though much of it came from other product lines wholly unrelated to this case. 
 
The language of the law is clear, and by ignoring it, the court improperly enabled a sky-high award. 
 
The trial court’s judgment should be overturned 
A correct interpretation on any of these issues should have been enough to rule in Pega’s favor. Pega asks the Court of Appeals to overturn the judgment and either rule in Pega’s favor or order a new trial on some or all issues. Written exchanges on the appeal are expected to be completed in the next 90 days, with oral arguments anticipated in summer 2023 and a written opinion issued some months later. Any potential appeal by either party to the Supreme Court of Virginia would follow. The full brief can be found here. 

Team Pega,

On behalf of the leadership team, I want to share some more detailed views about the lawsuit Appian brought in a Virginia county court as we approach some of our detailed filings in the appeal. As a reminder of what we shared previously, it is important to keep the following top of mind. We are a financially strong company. This lawsuit imposes no limits on how Pega develops, sells, or provides service on our products. This is a civil case with no criminal claims. We firmly believe that Pega will be successful in the appellate process.

1. The case is about Pega confirming what Appian can and cannot do.

The case arose out of market research Pega conducted back in 2012-2014. In 2012, Pega’s former head of competitive intelligence, John Petronio, engaged with a part-time consultant through a technology staffing firm to provide demonstrations and discussions of Appian. The consultant (who was never an employee of either Pega or Appian) was one of thousands of people using Appian’s platform to create apps. All told, the consultant received a total of $23,000 in payment over a period of two and a half years.

Mr. Petronio, who spearheaded the consultant’s work, hasn’t worked at Pega in seven years. He was let go long ago for performance reasons unrelated to Appian’s claims. Appian hired him the year after he left Pega, first as a consultant, and then, several years later, as its head of competitive intelligence. Eight months after assuming that role, Mr. Petronio told Appian lawyers the story that became the basis for this case. Appian then sued Pega. Despite Appian calling his work at Pega “unethical” and “corporate espionage,” Mr. Petronio remains employed as its head of competitive intelligence to this day.

Appian claimed that product features, which thousands upon thousands of people using its platform can plainly see, are its protected trade secrets. If Appian’s theory were true, any person who shares anything about their experience using Appian’s platform risks trade secret liability.

Appian alleged that Pega used information it learned from the consultant in two ways:

First, Appian claimed that Pega used what it learned about Appian’s platform to highlight Appian’s weaknesses. At trial, Appian maintained it was valuable to hide those weaknesses from prospects and customers. While Pega did highlight the absence of certain features or functionality in Appian’s platform, we strongly believe weaknesses that any person using Appian’s platform could observe are not secret at all. Moreover, customers are highly sophisticated who thoroughly evaluate the products on the market and make their own decisions about strengths and weaknesses.

Second, Appian said Pega used some vague and ill-defined information it learned from the consultant to change Pega’s own platform’s “social”, “mobile”, and “ease of use capabilities”.

In its lawsuit, Appian claimed that the billions of dollars Pega earned over eight years resulted from exposure to a few of Appian’s features in 2012 and 2013.

2. The alleged trade secrets are visible weaknesses of Appian’s platform and well-known features.

The alleged secrets are all features (or the absence of features) in Appian’s platform that people who write apps using the platform see, use, or otherwise know about. Some of them are also evident to many more end-users of the apps. Here is how Appian actually described them at trial:

1. Concurrent Development and Locking of Process Model
2. Specific Reporting Tools and Chart Types Available
3. Web Services Returned Only the Process ID
4. Specifics on Unified Management Tools Available
5. Star Schema/Reporting on External Data
6. Configuration and Customization of Checkpointing
7. Topology Specifics, Including Information from Experimentation
8. Confidential Documentation from Appian Forum

Most of these alleged secrets are visible weaknesses of Appian’s platform that Pega already knew of before Mr. Petronio sought out a consultant.

The other alleged trade secrets are basic (like a social media interaction) and commonly observed in many software products and platforms. Yet Appian claimed Pega copied something about Appian’s particular implementation of these between 2012 and 2013. This was how Appian actually claimed these alleged trade secrets at trial:

9. Smart Services
10. Custom Data Types
11. Ease of Editing Functionality
12. Out-of-the-Box Ability to Deploy Applications to Mobile Devices
13. Out-of-the-Box Integrated Social View of Worklists and Tasks

We contend that, not only are they not valid trade secrets, these sorts of things were in Pega’s platform well before any of the consultant’s demonstrations. We did not copy them from Appian.

3. We believe the claims have numerous vulnerabilities on appeal.

First and foremost, many trade secret cases have shown that if you share “secrets” with others without swearing them to secrecy, you lose any trade secret claim. We believe that what Appian claims are trade secrets do not qualify for protection. Trade secrets are typically information that is kept secret from everybody—like the Coca-Cola formula. A software platform used by many unnamed thousands of app developers can’t credibly be considered secret. Appian did not prohibit its users from sharing what they know about the Appian platform with anyone, and Appian let numerous software resellers demonstrate it freely—without calling the demonstrations “trade secrets” or swearing anyone to secrecy. Appian went so far as to display the platform at public conferences and posted videos publicly on the web.

Second, when a trial court incorrectly withholds important evidence from the jury, appeals courts usually order a new trial. Here the jury was not allowed to consider multiple categories of evidence that were essential for a fair trial of this case:

• Pega’s contract with the staffing agency required its consultants to have legal permission to demonstrate Appian’s software to Pega. But the jury never heard this evidence.
• Appian gave thousands of people access to the alleged secrets it now says are worth billions of dollars, including over 12,000 free trials, blog posts, and YouTube demo videos. The jury never heard these important facts.
• Pega also wasn’t allowed to demonstrate for the jury the versions of the Pega platform—both before and after the consultant’s demonstrations. As a result, the jury could not see for itself the clearest evidence that Pega already had what Appian claims was copied.

4. We believe the $2 billion damages is grossly inflated and vulnerable on appeal.

The nearly $2.1 billion damages award is by far the largest in Virginia’s history. It exceeds Appian’s 2021 annual revenue by 500%, it amounts to two-thirds of Pega’s gross profit over eight years, and, we believe, is the product of several trial errors.

The trial court incorrectly instructed the jury on how to consider damages, an error that by itself is grounds to overturn the case. It is a basic rule in our legal system that the party who sues must prove their case. And Virginia expressly adopted that rule in its trade secret statute. But here the court told the jury that Appian did not need to quantify the amount of supposed damages— all they needed to prove was Pega’s total revenues without showing connection between those revenues and its alleged trade secrets. In effect, the court’s instruction told the jury that Appian had proven its case just by pointing to Pega’s $6 billion in sales, and that it was Pega’s job to disprove that these sales were connected to the alleged trade secrets. That was wrong. The law required Appian to prove its supposed damages.

Furthermore, the court incorrectly prevented the jury from learning that Pega and Appian did not even compete in the majority of Pega’s business.

With those instructions given by the court, Appian repeatedly told the jury the starting point for damages was Pega’s $6 billion in total revenue. In our view, this led directly to the astronomical damage award, which included damages for sales in which Appian did not even compete with Pega, as well as for unrelated products that could not have used the alleged trade secrets.

5. Pega is a highly ethical company and committed to continuous improvement.

John Petronio, who chose and managed the consultant, hasn’t worked at Pega in seven years. His employment was terminated in 2015 for reasons unrelated to Appian’s claims. Mr. Petronio has worked with and for Appian since 2016 in competitive intelligence roles and was promoted to be Appian’s head of competitive intelligence in 2019.

Appian also brought suit against Pega for a non-criminal violation of the Virginia Computer Crimes Act because a handful of employees accessed publicly available free trials without identifying themselves as affiliated with Pega. The jury awarded $1 on that claim. Any implication in press statements that Pega’s CEO was one of those employees is categorically false. In response to learning about that activity, Pega implemented a technical block to prevent access from any Pega location or Pega laptop to Appian free trials and further enhanced our already robust compliance training.

In summary, as we shared earlier in May, we strongly disagree with the claims and the outcome of the trial, which we believe are not supported by the facts of the case or the law and are the result of significant error. We have strong grounds to overturn this result, and we are actively pursuing all legal options. As a reminder, the appeals process could potentially take years to complete, and no judgment, if any, would be payable until this process is complete. In the meantime, we will continue to focus on partnering with our clients to address their most pressing digital transformation challenges.

On September 15, 2022, the Fairfax County judge who oversaw the trial in the Virginia Appian case wrapped up the trial phase by filing an order that allows Pega to take the first steps in its appeal. This moves the case from a local trial court to a different, higher state court whose purpose is to correct mistakes of trial courts. 

As we have previously said, Pega strongly disagrees with the claims and the verdict, which are not supported by the facts of the case or the law and are the result of significant error, and we have full confidence in the strength of our appeal.  As a reminder, the appeals process could take years to complete, and no judgment would be payable until this process has ended. Regardless of any eventual outcome, our clients’, prospects’, and partners’ ability to use our products is not and will not be affected by this lawsuit.

View filing >

Email to employees of Pegasystems Inc. sent May 12, 2022

Team Pega,

On behalf of the leadership team, I want to take a moment to share important clarifications and respond to questions related to the Appian lawsuit. To be clear, this is a civil case between competitors with no criminal claims. As you read in our statement, Pega strongly disagrees with the claims and the recent verdict, which are not supported by the facts of the case or the law and are the result of significant error.

We have strong grounds to appeal, and we are financially strong.

We have full confidence in the strength of our appeal. The appeals process could take years to complete, and no judgment would be payable until this process has ended. Pega has the financial strength to pay a judgment if it ever becomes necessary.

There are no limits on how Pega develops, sells, or provides service on our products now or in the future.

Our clients’, prospects’, and partners’ ability to use our products is not in question. This is true regardless of any eventual outcome. We are continuing to invest in industry-leading technologies and innovation. Please continue to engage deeply and personally with our clients and partners.

It is common practice for software companies to conduct competitive analysis, which often includes assessing competitors’ products.

Back in 2012, Pega’s then-head of competitive intelligence, John Petronio, hired a part-time contractor through a staffing firm to perform competitive research. Mr. Petronio guided and supervised the contractor, created videos and training based on his work, and led “Project Crush.” The contractor’s work was completed by September 2014, and he was paid a total of $23,000 over the three years.

In January 2015, Pega terminated Mr. Petronio.

Appian now employs Mr. Petronio as its head of competitive intelligence.

Appian’s CEO could not identify one “trade secret.”

Appian has alleged that the contractor provided Pega with information Appian now claims as “trade secrets,” a characterization that Pega strongly disputes. In his testimony, Appian’s CEO and Co-Founder Matthew Calkins testified that he could not identify one trade secret that Pega had allegedly misappropriated. During the trial, Appian’s Vice President of Product Strategy and Deputy CTO Malcolm Ross changed his testimony as to what was and was not a trade secret.

Many of the now-alleged trade secrets are in fact significant Appian product limitations and weaknesses. One of Appian’s paid experts testified it was valuable to “hide those weaknesses from its customers.” The now-alleged trade secrets include major shortcomings for Appian products such as the risk of data loss by Appian customers.

Pega is committed to the highest ethical standards.

Over our 39 years, we have built deep and trustful relationships with many of the world’s leading organizations and governments. If something goes wrong, we own it. Pega has acknowledged a small number of employees accessed public Appian free trials that Appian wanted to keep closed to Pega. We took corrective action and implemented technical blocks to prevent such access to Appian free trials in the future.

The implication in Appian’s press release that Pega’s CEO accessed any Appian free trials is categorically false.

Pega long ago opened our own free trials to everyone, including competitors, as Pega does not consider free trials to contain any trade secrets.

We do not expect to make ongoing comments on this lawsuit. To make sure that you feel comfortable sharing this information, we are filing this letter publicly as an 8K.

Thank you for your support and enduring commitment to Pega, our clients, and our partners.

Ken

Ken Stillwell | Chief Operating Officer and Chief Financial Officer | Pegasystems Inc.

There are no limits on how Pega develops, sells, or provides service on our products now or in the future.

Our clients’, prospects’, and partners’ ability to use our products is not in question. This is true regardless of any eventual outcome. We are continuing to invest in industry-leading technologies and innovation. In support of this, see the attached letter from Pegasystems’ outside legal counsel.

Letter from Pega outside counsel pertaining to no limitations on the usage of Pega products >

In the unlikely event Pega has to make a large payment related to this verdict, how would it do so?

We have full confidence in the strength of our appeal. The appeals process could take years to complete, and no judgment would be payable until this process has ended. Pega has the financial strength to pay a judgment if it ever becomes necessary. By example, Pega raised $600 Million in a single day in February 2020 through issuing convertible debt. This type of mechanism, among others, could provide for such a still unexpected need.

View filing >

We strongly disagree with the claims and the verdict, which are not supported by the facts of the case or the law and are the result of significant error. We have strong grounds to overturn this result, and we are actively pursuing all legal options. As a reminder, the appeals process could potentially take years to complete, and no judgement would be payable until this process has ended. 

This verdict has no impact on our products or what we are able to sell and service. In the meantime, we will continue to focus on helping our clients address their most pressing digital transformation challenges so they’re ready for what’s next.