Trade Secrets I – Company Using “Spy” Slammed with $2 Billion Jury Award.
As more workers jump to new employers in the “Great Resignation,” trade secret and noncompete legislation naturally has boomed (as we reported here) – but a recent jury verdict shocked us.
A Virginia jury awarded $2.036 billion in damages to Appian, payable by Pegasystems Inc., after a seven-week trial. The facts established were egregious, including that Pegasystems willfully and maliciously stole Appian’s trade secrets by hiring an Appian contractor/software developer to be a “spy” (the term Pegasystems’ own employees used) to learn how to better compete against the company. The hired contractor supplied Pegasystems with various trade secrets of Appian, including videos of Appian’s development environment. Pegasystems used the pilfered trade secrets to alter its own product engineering to better compete, costing Appian lost sales. Appian even provided evidence that Pegasystems employees used fake identities to access Appian information and trial versions of its software for competitive purposes, all in violation of the Virginia Computer Crimes Act.
Trade Secrets I – Company Using “Spy” Slammed with $2 Billion Jury Award.
On the opposite end of the spectrum – and showing that facts matter (national politics aside) – a semi-conductor trader has failed in its bid to stop a former employee from working for a start-up competitor despite the new company’s astounding growth after his arrival.
In CAE Integrated, LLC v. Moov Technologies, Inc., both companies sold and traded semiconductor equipment, although Moov did not start its business until 2017. When Moov’s business shot up over $1 billion within a year and a half of Moov hiring a former CAE trader as its new Head of Sales, CAE found the growth to be “highly implausible” absent a trade secret violation and announced it was “going to war” with Moov.
Regrettably for CAE, the evidence showed that the former employee made diligent efforts to return and delete all of CAE’s confidential information – including providing his personal computer to CAE for review and deletion – and had served out his one-year non-compete without violation, starting with Moov a year after leaving CAE. Although some CAE documents remained on a remote Google cloud account, forensic analysis showed that the employee had not accessed that information and he testified he had not done so.
As such, the former employer’s claims evaporated into a wisp of speculation, and both the federal district court and the U.S. Court of Appeals for the Fifth Circuit rejected CAE’s plea for a preliminary injunction to stop the employee from working at Moov.
Lessons: (1) Employees should honor their non-compete and non-disclosure agreements and, in any event, leave no electronic footprints of a violation. (2) Employers who look to wage “war” in court about suspected violations better have some evidence or they will end up wasting a lot of money (unless, of course, their improper purpose is merely to investigate, hassle and hinder a startup competitor and former employee, which we often find out to be the case, unfortunately).