Cambridge software firm Pegasystems gets $2b judgment thrown out

Rival Appian Software had won the damages after a 2022 trial in which it alleged Pegasystems had stolen its trade secrets

Pegasystems chief executive Alan Trefler spoke at a company event last year.

A Virginia appeals court on Tuesday threw out a $2 billion jury verdict against Cambridge software firm Pegasystems. Appian Software, its rival, had won the damages after a 2022 trial in which it alleged Pegasystems had stolen its trade secrets.

A three-judge panel of the Court of Appeals of Virginia ruled that a lower court judge had not allowed Pega to present relevant evidence and had instructed jurors improperly about calculating damages. The appeals court ordered a new trial in the case instead of ruling completely in favor of Pegasystems.

“This complex trial ventured into uncharted legal waters and culminated in a multi-billion dollar damages award which we now reverse,” appeals court judge Frank Friedman wrote in the ruling. “We reject Pega’s claim that Appian failed to establish misappropriation of any trade secret as a matter of law. However, we agree with Pega that the trial court erred.”

Shares of Pegasystems gained 7 percent, to $70.70 on Tuesday after the verdict came out. The shares are up 45 percent so far this year.

Pegasystems said it was pleased with the decision. “As we’ve said from the beginning, the overturned judgment had the structural integrity of a skyscraper of cards, so it is no surprise it has collapsed,” the company said in a statement.

Appian said it planned to appeal to the Supreme Court of Virginia. “We remain confident that the evidence of misappropriation and our right to corresponding damages will be properly addressed by Virginia courts,” the company said in a statement.

Pegasystems and Appian both make software that helps companies create their own applications. During a seven-week trial in Virginia circuit court, 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.

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.

The jury found in favor of Appian and calculated the damages based on Pegasystem’s entire revenue for years after the alleged theft, resulting in the $2 billion award — one of the largest ever in a trade secrets case.

But the appeals court said Pegasystems should have been allowed to present evidence that not all of its sales came from the allegedly stolen trade secrets and to show the jury different versions of its apps running on a laptop.

Trefler, a Brookline native, founded Pegasystems in 1983 and built it into one of the largest software developers in the region. Pegasystems’ revenue grew 9 percent in the first half of the year to $681 million.