The Virginia Business Litigation Blog
Proof of damages is an essential element to any claim for breach of contract. The plaintiff has the “burden of proving with reasonable certainty the amount of damages and the cause from which they resulted.” (See Sunrise Continuing Care, LLC v. Wright, 277 Va. 148, 156 (2009)). A fundamental feature of our legal system is that the party bringing the litigation must produce the evidence needed to support the claims. Defendants generally aren’t required to produce any evidence at all. The rule sounds innocuous but can be unforgiving in practice. In Virginia, a plaintiff seeking monetary relief must prove not only liability but the amount of its damages with reasonable certainty. Sometimes, the defendant is in sole possession of the relevant financial data, making it difficult (if not impossible) for a plaintiff to prove its case. According to a recent decision of the Virginia Supreme Court, rules are rules; they can’t be broken as a matter of equity or convenience.
In the case of Appian Corp. v. Pegasystems, Inc., a jury returned a verdict exceeding $2 billion after finding that a competitor had misappropriated trade secrets through what the record described as sustained corporate espionage. That massive judgment did not survive appellate review. Although the evidence was deemed sufficient to support the jury’s finding of trade secret misappropriation, the trial court had improperly instructed the jury that the defendant bore the burden of proving which portions of its profits were untainted by the misappropriation. That instruction reflected a widely accepted national approach to trade-secret damages. But it was held to be inconsistent with controlling Virginia law.
The case arose from a fierce competitive rivalry between Appian Corporation and Pegasystems, Inc., two enterprise software companies that sell “low-code” business process management platforms to large commercial and government customers. By the early 2010s, Appian had begun to surpass Pegasystems in influential industry rankings, a development that internal Pegasystems communications described as deeply destabilizing.
In 2012, Pegasystems’ competitive-intelligence group retained an outside consultant, Youyong Zou, who had authorized access to Appian’s software and confidential documentation through his employment with an Appian business partner. Pegasystems deliberately hired Zou as an external contractor and internally referred to him as a “spy,” taking steps to conceal his identity during presentations to Pegasystems engineers and executives. 
Over roughly two years, Zou downloaded internal Appian documents, created detailed tutorials demonstrating Appian’s software architecture, and briefed Pegasystems personnel on both Appian’s technical strengths and its nonpublic weaknesses.
At trial, Appian presented expert testimony that the information obtained through Zou went beyond publicly observable features and disclosed internal design choices, architectural tradeoffs, and performance limitations that Appian closely guarded. Appian’s experts identified several features introduced in later versions of Pegasystems’ platform that closely mirrored Appian’s internal implementations, as well as competitive sales strategies informed by confidential knowledge of Appian’s weaknesses. During the same period, the companies competed head-to-head hundreds of times.
Zou lost access to Appian’s systems in 2014, but evidence showed that Pegasystems employees later attempted to access Appian software through aliases and non-company credentials. The conduct came to light in 2020, after a former Pegasystems executive disclosed the scheme following his move to Appian. Appian then sued under the Virginia Uniform Trade Secrets Act. After a seven-week trial, the jury found misappropriation and awarded more than $2 billion in damages.
In proving damages at trial, Appian argued that if the jury determined that Pegasystems had sold tainted products, it became Pegasystems’ obligation to demonstrate that any portion of those sales should not be attributed to the misappropriation of trade secrets. This argument followed on a well-known formulation from the Restatement (Third) of Unfair Competition § 45 cmt. f, which says:
The plaintiff has the burden of establishing the defendant’s sales; the defendant has the burden of establishing any portion of the sales not attributable to the trade secret and any expenses to be deducted in determining net profits.
That rule appeals to many jurisdictions around the country for several reasons. First and foremost is that as a practical matter, the plaintiff is usually not in a position to trace exactly how the misappropriation of its trade secrets resulted in specific identifiable profits to the defendant. The defendant controls its own cost structures, profit allocations, and internal revenue segmentation. Requiring plaintiffs to disaggregate profits with precision is often impossible.
Additionally, damages under the Virginia Uniform Trade Secrets Act are governed by Va. Code § 59.1-338, which permits a plaintiff to recover damages on an unjust enrichment basis. Many courts view unjust enrichment as an equitable remedy that doesn’t require a tort-style damages calculation.
In Virginia, however, the Restatement is not binding legal authority. However appealing its logic may be, the settled common law in Virginia is that a plaintiff must prove the amount of its damages; the burden does not shift to the defendant, even if the defendant is in sole possession of the damages evidence. “A plaintiff bears the burden of proving both that he has been harmed by the defendant’s wrongful act and that the defendant’s wrongful act proximately caused the damages the plaintiff seeks to recover,” the court wrote.
The court noted that under Va. Code § 1-200, Virginia is bound to follow English common law unless modified by the legislature. The court found nothing in the Virginia Uniform Trade Secrets Act (or any other statute) that would shift the burden of proving damages to the defendant.
Also, while true that the defendant here was in sole possession of the data needed to prove damages with specificity, the VUTSA explicitly deals with this situation by providing for a fallback remedy of reasonable royalties. (See Va. Code § 59.1-338(A) (“If a complainant is unable to prove a greater amount of damages by other methods of measurement, the damages caused by misappropriation can be measured exclusively by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret”)). In other words, the General Assembly was fully aware that trade secret damages might be difficult to prove, and they addressed the problem not by shifting the burden of proof, but by making royalties available as a remedy.
The court concluded that the trial court had given improper instructions to the jury regarding the burden of proof on damages, so the court affirmed the Court of Appeals’ decision to set the verdict aside and remand for a new trial.