Cambridge software company Pegasystems lost a lawsuit against a rival on Tuesday and was hit with a $2 billion jury verdict.
Virginia-based Appian had accused Pegasystems of stealing its trade secrets and violating the state’s computer crime law during a seven-week jury trial in the Circuit Court for Fairfax County, Va.
Shares of Pegasystems lost 21 percent on Tuesday, giving the company a market valuation of about $4.4 billion. The news followed a bad six-month stretch for most tech stocks including Pegasystems, which is now down 53 percent this year. Appian’s shares jumped 39 percent on Tuesday.
One of the longest-standing software companies in Massachusetts, Pegasystems said it planned to appeal the verdict, a process which could take several years.
“The verdict is not supported by the facts of the case or the law and is the result of significant error,” Lisa Pintchman, vice president of corporate communications, said in a statement to the Globe. “We plan to vigorously pursue our post-trial remedies and will certainly appeal what we believe is an unjust result.”
Pegasystems and Appian both make software that helps companies create their own applications. During the trial, Appian alleged that Pegasystems paid an employee of a government contractor from 2012 to 2014 to learn about Appian’s software and pass the information on to its rival.
“We put forward strong evidence that Appian trade secrets were misappropriated by Pegasystems,” Christopher Winters, Appian’s general counsel, said in a statement. “The award of substantial damages to Appian is entirely appropriate given the improper conduct by Pegasystems.”
The $2 billion of damages came about after Appian alleged that the stolen trade secrets helped Pegasystems lure away customers including Amazon and the US Census Bureau, as well as generally improve its products to increase sales since 2012.
Appian learned of the alleged scheme after it hired a former Pegasystems employee, according to court filings.
“We were deeply surprised,” Appian chief executive Matt Calkins, who cofounded the company in 1999, told the Globe. “You can see the seriousness of what happened in the seriousness of the verdict… It is not just the dollar amount that matters here. It’s a statement.”
But the size of the award, one of the largest ever in a trade secrets case, could signal some issues with the jury’s decision-making process, according to University of Florida law professor Elizabeth Rowe. The videos, e-mails, and text messages presented in the case may have encouraged the jury to punish Pegasystems, which could open the door for a successful appeal.
“Typically when the conduct is egregious, jurors pay less attention to the technicalities,” Rowe said. “The case becomes focused on the theft, and everybody overlooks the technical part about whether everything was a trade secret and how much it was worth.”
Appian also alleged that, in 2019, Pegasystems employees used false identities to sign up for trial versions of Appian’s software — including Pegasystems’ founder and CEO Alan Trefler, who used the alias “Albert Skii,” according to court filings.
Trefler, a Brookline native, founded Pegasystems in 1983 and built it into one of the largest software developers in the region. In recent years, the company has shifted its focus from traditional packaged software to cloud-based services. Pegasystems’ revenue jumped 19 percent last year to $1.2 billion.
Trefler’s 49 percent stake in the company is worth about $2 billion. He landed at number 1,053 on the Forbes list of billionaires this year.
The company vacated some of its office space in Cambridge last year and moved to a new development in Waltham. Pegasystems employed more than 1,000 people in Massachusetts, Trefler told the Globe last year.
Aaron Pressman can be reached at email@example.com. Follow him on Twitter @ampressman.