VUTSA Damages: No Burden-Shifting—Plaintiff Must Prove Causation and Amount; Royalty Is the Statutory Backstop

1. Introduction

This decision arises from a high-stakes trade secrets dispute between direct competitors in the business process management (“BPM”) software market: Appian Corporation (“Appian”) and Pegasystems, Inc. (“Pega”). Appian alleged that Pega conducted corporate espionage by hiring a developer with access to Appian’s licensed environment and “Appian Forum” documentation, and that Pega used the obtained information both to improve its own product and to exploit Appian’s vulnerabilities in competitive sales.

The litigation produced a seven-week trial and a jury verdict for Appian exceeding $2 billion under the Virginia Uniform Trade Secrets Act (“VUTSA”), Code § 59.1-336 et seq. The Court of Appeals affirmed liability but ordered a new trial because of multiple trial errors—most importantly, an instruction that shifted key burdens on damages to Pega. Appian sought reinstatement of the verdict; Pega sought judgment as a matter of law on liability.

The Supreme Court of Virginia’s opinion is consequential because it (i) rejects burden-shifting on VUTSA unjust-enrichment damages as inconsistent with Virginia common-law principles and VUTSA’s text, and (ii) clarifies trial-court limits on excluding damages defenses and core evidence through overly aggressive readings of discovery responses and exhibit-identification mechanics in an electronic-evidence era.

2. Summary of the Opinion

• Liability sufficiency affirmed: The Court held that the evidence was sufficient for a rational jury to find Appian possessed trade secrets and that Pega misappropriated them, so Pega was not entitled to have the case struck or the verdict set aside as a matter of law.
• New trial affirmed due to multiple errors: The Court affirmed the Court of Appeals that the circuit court committed reversible errors, including:
  • Damages instruction error: Jury Instruction #14 improperly shifted to Pega the burden to prove what portion of sales was not attributable to misappropriation and what expenses to deduct.
  • Discovery/evidence error (Interrogatory #18): The circuit court improperly barred Pega from presenting evidence that substantial revenue derived from non-BPM products, based on a misreading of Pega’s interrogatory response.
  • Software authentication/exclusion error: The circuit court abused its discretion by refusing to allow Pega to attempt to authenticate software on a substitute laptop when the produced laptop became inoperable.
  • Relevance/instruction error: The circuit court erred in telling the jury the number of users/licensees was “not relevant,” because the breadth of access can shed light on whether secrecy measures were “reasonable under the circumstances.”
• Harmless error rejected: Under Code § 8.01-678, the combined errors prevented the Court from concluding the parties had a fair trial and that substantial justice had been reached.

3. Analysis

3.1 Precedents Cited

A. Appellate posture, deference, and standards of review

• RGR, LLC v. Settle and Bennett v. Sage Payment Solutions, Inc.: Used to frame Appian’s “most favored position” on review because it held a jury verdict approved by the circuit court—requiring the Supreme Court to view evidence favorably to the verdict-holder when assessing sufficiency.
• Norfolk Southern Ry. Co. v. Sumner and Dixon v. Sublett: Reaffirm the “light most favorable” evidentiary lens and the “plainly wrong or without evidence” constraint on disturbing fact findings.
• Palmyra Assocs., LLC v. Commissioner of Hwys., Galloway v. City of Northampton, AV Auto., LLC v. Gebreyessus, and Galiotos v. Galiotos: Supply the abuse-of-discretion framework governing evidentiary rulings and trial management, including discovery and pretrial order compliance. The Court leaned on these cases to show deference is broad but not boundless—abuse exists when a court considers improper factors, ignores proper ones, or commits a clear error of judgment.
• Commonwealth v. Holman and Amin v. County of Henrico: Anchor de novo review for questions of law.
• Hawthorne v. VanMarter: Establishes that whether a jury instruction accurately states the law is a legal question reviewed de novo—critical to the Instruction #14 reversal.

B. Trade secret definition and “reasonable secrecy” are fact-intensive

• MicroStrategy Inc. v. Li: Central to the Court’s liability-sufficiency analysis. It underscores that whether information qualifies as a trade secret “ordinarily” is a fact question for the factfinder after an “ad hoc evaluation” of circumstances. This case helped defeat Pega’s effort to re-litigate trade-secret status as a matter of law on appeal.
• Dionne v. Southeast Foam Converting & Packaging, Inc. (citing Kewanee Oil Co. v. Bicron Corp.): Provides the controlling principle that secrecy “need not be absolute”; disclosure to others does not defeat trade secret protection if made “in confidence, express or implied.” The Court relied on this to reject Pega’s argument that Appian’s distribution to many users automatically extinguished trade secret protection.

C. Common-law burden of proof, separation of powers, and statutory interpretation

• Banks v. Mario Indus., Saks Fifth Ave., Inc. v. James, Ltd., Shepherd v. Davis, and Hale v. Fawcett: These cases collectively reflect the longstanding Virginia rule: plaintiffs must prove harm and proximate causation of damages, reinforcing that burden allocation is a foundational common-law feature.
• Walmart Stores East, LP v. Leverette: Cited for historical common-law roots of requiring a plaintiff to prove damages with sufficient certainty.
• White v. United States and Robinson v. Matt Mary Moran, Inc.: Invoked to emphasize that courts are not free to “simply disagree with English common law,” and that changing common law is the legislature’s role.
• Tvardek v. Powhatan Vill. Homeowners Ass'n and Linhart v. Lawson: Provide the canon: abrogation of common law requires plain legislative intent.
• Wicks v. City of Charlottesville: Supplies the key interpretive rule applied to VUTSA: common law is “read into” statutes unless the statute clearly changes it. This was decisive in rejecting Instruction #14’s burden shift absent explicit statutory language.
• Commonwealth, Dep't of Taxation v. Champion Int'l Corp.: Used to treat the General Assembly’s deviation from the model Uniform Trade Secrets Act as “deliberate and intentional,” strengthening the conclusion that Virginia’s VUTSA text (especially its royalty clause) reflects a conscious legislative choice.
• Riner v. Commonwealth: Supports the Court’s refusal to adopt policy-based changes to common law burdens under the guise of interpretation; such choices are legislative.

D. Discovery sanctions and evidentiary gatekeeping

• Martin & Martin v. Bradley Enters.: Recognizes trial courts’ “considerable discretion” in discovery compliance and related evidentiary rulings—but the Court used the principle as a boundary, not a blank check, when characterizing the circuit court’s rulings as “nuclear” in effect.

E. Relevance doctrine and erroneous “irrelevance” findings

• Commonwealth v. Proffitt: Stands for the proposition that it is an abuse of discretion to exclude admissible relevant evidence based on an erroneous relevance determination. This directly supported reversal of the “numbers are not relevant” instruction.
• Virginia Elec. & Power Co. v. Dungee, Townes v. Virginia State Bd. of Elections (quoting McNeir v. Greer-Hale Chinchilla Ranch): Reinforce that the relevance threshold is low; evidence need only “cast any light” on a fact in issue. That principle made the “number of users” evidentiary exclusion untenable.

F. Additional cited authorities (contextual rather than controlling)

• Minh Duy Du v. Commonwealth: Cited for the Court’s practice of selectively unsealing facts relevant to decision-making.
• Valiente v. Nexgen Global, LLC (citing Lamonaco v. Experian Info. Sols., Inc. and Nguyen v. Barnes & Noble Inc.): Used descriptively to explain “clickwrap” agreements in the factual record concerning free trials; not central to the holdings but illustrates modern confidentiality mechanisms that can support “reasonable efforts” under VUTSA.
• Commonwealth v. White: Cited for harmless error review framework under Code § 8.01-678.

3.2 Legal Reasoning

A. Liability: why the evidence could support misappropriation and trade-secret status

The Court kept the liability question within MicroStrategy Inc. v. Li’s fact-finder framework. Appian’s evidence identified trade-secret “information” not limited to source code: product “how” (architecture/design), confidential documentation, and non-public weaknesses leveraged in competition. The Court found the record supported each element of Code § 59.1-336:

• Economic value from secrecy / not readily ascertainable: Pega’s own conduct (hiring a “spy,” blurring the spy’s identity, and later using aliases to access trials) supported an inference that the information had competitive value and was not readily obtainable by proper means.
• Reasonable efforts to maintain secrecy: The Court rejected “absolute secrecy” and held that forum terms, confidentiality markings, server controls, employee confidentiality agreements at partners (e.g., Serco), and clickwrap restrictions could support a finding of reasonable measures. Pega’s need to use improper methods further supported the conclusion that the information was meaningfully protected.

B. The core doctrinal holding: VUTSA does not shift the burden of proving unjust-enrichment damages

The opinion’s most significant doctrinal clarification is its rejection of Instruction #14’s burden-shifting. The instruction told jurors that once Appian proved misappropriation and Pega’s sales, Pega had the burden to prove what portion of sales was not attributable to the trade secrets and what expenses should be deducted to reach net profits. The Court held this is not Virginia law.

The Court’s reasoning proceeds in three steps:

1. Common-law baseline: Virginia’s common law places the burden on the plaintiff to prove damages and proximate causation (citing Banks v. Mario Indus., Saks Fifth Ave., Inc. v. James, Ltd., Shepherd v. Davis, Hale v. Fawcett). Under Code § 1-200, that baseline persists unless changed by the General Assembly.
2. No clear legislative abrogation: Under Wicks v. City of Charlottesville and Tvardek v. Powhatan Vill. Homeowners Ass'n, a statute is read with the common law unless it clearly changes it. VUTSA’s damages provision, Code § 59.1-338, contains no explicit shift.
3. VUTSA’s text affirmatively implies plaintiff’s burden: The Court emphasized the royalty clause: “If a complainant is unable to prove a greater amount of damages by other methods of measurement, the damages ... can be measured exclusively” by reasonable royalty. That language presupposes the complainant bears the burden of proving a “greater amount” and provides a fallback when the complainant cannot.

The Court also rejected reliance on the model UTSA and the Restatement (Third) of Unfair Competition § 45 cmt. f as a basis to infer a burden shift. Even if many jurisdictions adopt burden-shifting, Virginia’s statutory text differs materially from the model UTSA, and that divergence is treated as intentional (per Commonwealth, Dep't of Taxation v. Champion Int'l Corp.). Policy arguments for burden-shifting were directed to the legislature (per Riner v. Commonwealth).

C. Discovery and damages defenses: Interrogatory #18 was overread into a sweeping evidentiary preclusion

The Court affirmed the Court of Appeals that the circuit court abused its discretion by treating Pega’s answer to Interrogatory #18 as an abandonment of any defense that revenue came from non-BPM product lines. The interrogatory requested revenue “relating to” particular versions of Pega’s BPM software; Pega answered it did not track revenue by version and produced SEC filings. The Supreme Court agreed that:

• “Not tracking revenue by software version” does not equate to “no other product lines exist” or “no revenue tracking by product line.”
• The proffered trial evidence (revenue from other products) did not contradict the interrogatory response, so the sanction-like preclusion “exceeded the outermost limits” of discretionary choice.

D. Electronic evidence and authentication: the exhibit is the data/software, not the dead laptop

The Court treated the circuit court’s ruling as unreasonably formalistic: Pega’s exhibit list identified “Pega Laptop Containing Version 6.3...” and “Pega Laptop Containing Version 7.1...,” which fairly identified the relevant software versions as the real evidentiary target. When the discovery laptop was inoperable, the circuit court refused to allow Pega to authenticate identical versions on another laptop via witness testimony (including from the software development lead). The Supreme Court held that:

• A court may insist the trial versions be identical to the discovery-produced versions, but it cannot deny a party any opportunity to authenticate identity through available evidentiary means.
• Concerns about “trial within a trial” and delay could be addressed through less drastic tools (conditional use, forensic review, sanctions if misrepresentation occurs), not categorical exclusion.

E. Relevance: number of people with access is relevant to “reasonable efforts” and secrecy likelihood

The Court held that excluding and then instructing away the “number of users/licensees” as irrelevant was legal error under Virginia’s low relevance threshold (Va. R. Evid. 2:401; Virginia Elec. & Power Co. v. Dungee; Townes v. Virginia State Bd. of Elections) and an abuse of discretion under Commonwealth v. Proffitt.

Critically, the Court did not say large distribution defeats trade-secret status; it reaffirmed Dionne v. Southeast Foam Converting & Packaging, Inc. that secrecy can exist with broad disclosure if confidentiality is implied or express. The point is narrower: headcount can “cast light” on whether measures were reasonable “under the circumstances” and on whether information might be obtainable through publicly available channels.

3.3 Impact

A. Substantive VUTSA damages: Virginia rejects Restatement-style burden-shifting

The headline impact is on damages litigation under VUTSA:

• Plaintiff must prove unjust enrichment “caused by misappropriation”—both causation and amount remain on the complainant, consistent with common-law damages principles.
• Royalty damages become the statutory “safety valve” when proof of actual loss or unjust enrichment is not achievable with the required certainty. The opinion reads the royalty clause as evidence that the legislature chose royalties—not burden shifting—to address proof difficulties.
• Jury instructions must avoid implicit “all sales unless defendant disproves” logic. Plaintiffs can still seek net profits as unjust enrichment, but must carry the evidentiary load to connect profits to misappropriation and to prove a measure reliably.

B. Trial practice: narrower “sanction by interpretation” approaches to discovery answers

• Courts retain broad discretion, but this opinion cautions against converting an ambiguous or limited interrogatory answer into a sweeping forfeiture of major defenses—especially where the interrogatory’s text is itself narrower than the preclusion imposed.
• Parties should expect courts to look first to the interrogatory’s wording and to whether trial evidence actually contradicts a discovery response, rather than using discovery disputes to decide merits issues by default.

C. Electronic evidence: authentication pathways matter

• Exhibit identification tied to a storage device should be interpreted functionally when the “thing” is the data/software itself; rigid “the physical laptop is the exhibit” reasoning invites reversible error where devices fail.
• Authentication can be established by testimony and other Rule-compliant methods; categorical denial of an opportunity to authenticate is disfavored.

D. Trade-secret secrecy: access counts are admissible context, not dispositive outcomes

• Defendants in VUTSA cases gain a clear relevance argument for access-population evidence as it relates to reasonable secrecy efforts.
• Plaintiffs retain protection even with broad disclosure if confidentiality is maintained (express or implied), but can expect more probing of how those confidentiality structures function at scale.

4. Complex Concepts Simplified

• Trade secret (VUTSA): Information with economic value from not being generally known or readily ascertainable, and protected by reasonable secrecy measures (Code § 59.1-336). It can be “how the product works,” documentation, or non-public weaknesses—not just source code.
• Misappropriation: Acquiring or using trade-secret information by “improper means” (e.g., espionage, misrepresentation, unauthorized network use), or disclosure/use in breach of a duty of secrecy (Code § 59.1-336).
• Unjust enrichment damages: A remedy aimed at stripping gains the defendant received because of misappropriation. The key is the causal tie: enrichment must be “caused by misappropriation” (Code § 59.1-338).
• Reasonable royalty: A statutory alternative damages measure used when the plaintiff cannot prove a greater amount of actual loss or unjust enrichment (Code § 59.1-338). The Court treats it as the legislature’s chosen solution to proof difficulty.
• Burden of proof: Who must persuade the jury. This case holds VUTSA does not shift the burden to defendants to disprove attribution or prove deductions; plaintiffs must prove their damages case.
• Abuse of discretion: A deferential appellate standard for evidentiary and trial-management rulings. Deference ends when a court’s decision goes beyond the permissible range, including by misapplying relevance or imposing disproportionate exclusionary consequences.
• Motion in limine: A pretrial request to exclude or limit evidence. Here, using it to deem access-count evidence “irrelevant” was error because relevance is a low threshold and access numbers can inform secrecy reasonableness.
• Clickwrap: Terms accepted by clicking “I agree” during registration or download. Such terms can be evidence of reasonable secrecy measures, even when access is broadly offered via trials.

5. Conclusion

Appian Corporation v. Pegasystems, Inc. affirms that VUTSA liability questions (trade-secret status and misappropriation) are typically for the factfinder and that the espionage-themed evidentiary record here could support a verdict for Appian on liability. But the Court simultaneously enforces strict doctrinal limits on damages proof: VUTSA does not authorize Restatement-style burden-shifting of unjust-enrichment attribution and deductions to the defendant, and Virginia’s common-law allocation of the burden of proving damages remains in place absent clear legislative change.

On retrial and in future VUTSA litigation, parties should expect (i) damages to be litigated with plaintiff-borne causation and quantification proof (with royalties as a fallback), (ii) fewer “gotcha” exclusions based on overextended readings of discovery answers, (iii) practical treatment of electronic exhibits that preserves authentication opportunities, and (iv) admissibility of access-scale evidence as relevant context for the “reasonable efforts” secrecy element.