A jury in Virginia has awarded software company Appian Corp. more than $2 billion in damages, finding that its competitor, Pegasystems Inc., had stolen its trade secrets.
As Reuters reported,
Appian, based in McLean, Virginia, alleged in its May 2020 lawsuit that Pegasystems retained an employee of a government contractor from 2012 to 2014 to access its software, helping it to improve its own products and better train its sales force.
It said Pegasystems, based in Cambridge, Massachusetts, referred internally to the contractor as a “spy” and to its scheme as “Project Crush,” with some employees using bogus credentials to fool Appian into providing access.
As The Stack noted,
The court heard that Pegasystems hired a contractor using Appian software to make video recordings of the Appian development environment so that Pegaystems could compile “competitive materials.”
The allegations date back to the activity taking place between 2012 and 2014.
“[Appian] Terms and Conditions, they are chockablock with protections. There are permitted usage only for the business purposes, only the identified individuals with the user accounts can have access, only people with a need to know who is subject to binding agreements”, the company’s lawyers told the court in closing arguments, pointing to evidence that top Pegasystems executives including its CEO gained access to Appian software in breach of those terms, with staff at Pega saying they would use the intelligence to “shape RFPs”.
Pegasystems seems likely to appeal. However, as Bloomberg Law reported,
The award more than doubled the verdict Epic Systems Corp. won against Tata Consultancy Services Ltd., which itself raised eyebrows. Tata later convinced a judge to slash Epic’s $940 million award to $420 million, and an appeals court slashed it further to $280 million. The US Supreme Court finalized that outcome in March, declining a petition to review the reduction.
The award fits into a trend, with juries increasingly willing to punish corporate espionage harshly. But the entire award being compensatory—while the bulk of Epic’s was punitive—limits Pegasystem’s options for having the number slashed.
As Seeking Alpha reported, Appian shares surged almost 40% after the verdict was announced, while Pegasystem shares fell more than 20%.
According to Reuters,
In 2021, Appian posted an $88.6 million net loss on $369.3 million of revenue, while Pegasystems lost $63 million on revenue of $1.21 billion, regulatory filings show.
Recruiting a competitor’s employee – or former employee – is a popular method for engaging in trade secret theft.
Any smart business will make sure its employees are bound by non-disclosure agreements (NDAs) that prohibit them from disclosing their employer’s trade secrets and other confidential information during the term of their employment and for some years thereafter – perhaps indefinitely.
However, an NDA (contrary to some people’s expectations) is not a magic spell. It’s not as powerful a tool for protecting secrets as the fictional method shown in the Apple+ TV show Severance, in which workers have their brains surgically divided between their work and home lives.
Employees can and do violate NDAs, and companies must invest significant resources in enforcing them.
Other methods for industrial espionage include:
- Cyberattacks/Hacking to break into a company’s computer systems
- Going through a company’s garbage
- Breaking into company premises
- Taking aerial photos
- Using listening devices
Companies with valuable trade secrets are wise to take steps to protect against these hazards.
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