PEGASYSTEMS INC 10-K

ITEM 3. LEGAL PROCEEDINGS In addition to the matters below, the Company is, or may become, involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions with respect to contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors. Pegasystems Inc. v. Appian Corp. & Business Process Management Inc. On July 3, 2019, the Company filed suit in Massachusetts federal court against Appian Corp. (“Appian”) and Business Process Management, Inc. (“BPM”) relating to a BPM “Market Report” that Appian had used to promote itself against the Company. Pegasystems Inc. v. Appian Corp. & Business Process Management Inc. , No. 1:19-cv-11461 (D. Mass). The Company’s complaint alleges that the report and Appian’s marketing of it include false and misleading statements about the Company. The Company asked the court to order Appian to stop using the report, and Appian subsequently agreed to stop using the report. The Company also asked the court to award damages for false advertising, deceptive business practices, and commercial disparagement. On December 17, 2019, Appian asserted counterclaims against the Company seeking unspecified monetary damages and alleging certain of the Company’s past marketing materials included false and misleading statements, one of the marketing reports failed to disclose that the report’s author was paid by the Company, and that the Company defamed Appian in a LinkedIn post. On May 22, 2020, the court allowed in part the Company’s motion to dismiss the counterclaims brought by Appian, but denied the motion as to the third party report and the defamation count. As described below, on May 29, 2020, Appian then sued the Company in Virginia. On June 17, 2021, Appian asserted additional counterclaims against the Company seeking unspecified monetary damages and alleging that certain additional marketing materials used by the Company contained false or misleading statements. The Company believes the counterclaims brought by Appian against the Company are without merit, and the Company intends to vigorously pursue its claims against Appian and defend against the counterclaims brought against the Company in this matter. The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the Company’s belief that the damages claimed by Appian fail to satisfy the required legal standard, the status of the proceeding, and due to the uncertainty as to how a jury may rule if this ultimately proceeds to trial. Appian Corp. v. Pegasystems Inc. & Youyong Zou On May 29, 2020, Appian sued the Company and an individual, Youyong Zou, in the Circuit Court of Fairfax County, Virginia in a matter titled Appian Corp. v. Pegasystems Inc. & Youyong Zou , No. 2020-07216 (Fairfax Cty. Ct.). The complaint filed by Appian on May 29, 2020 (the “2020 Complaint”) alleges that Mr. Zou was an employee of an Appian business partner, Serco Inc. (“Serco”); that, as a result, Mr. Zou had access to Appian trade secrets which Mr. Zou was required to keep confidential; and that in approximately 2013, while Mr. Zou was employed by Serco, the Company engaged Mr. Zou through an intermediary to provide the Company with Appian trade secrets and confidential information, which the Company is then claimed to have used to compete against Appian. The 2020 Complaint sets forth claims for misappropriation of trade secrets under the Virginia Uniform Trade Secrets Act, violation of the Virginia Computer Crimes Act, tortious interference with contract and business expectancy, and statutory and common law conspiracy. On July 24, 2020, the Company filed a plea in bar, seeking to have the claims asserted against the Company in the 2020 Complaint barred, in whole or in part, by the applicable statutes of limitations. Before the original plea in bar could be heard, Appian filed an amended complaint which the court allowed on November 4, 2021 (the “2021 Amended Complaint”), alleging that, in the 2019 time frame, employees of the Company accessed free Appian product trials under false pretenses. The 2021 Amended Complaint withdrew the claim for tortious interference with contract. After Appian filed the 2021 Amended Complaint, the Company successfully moved to dismiss Appian’s conspiracy claims, which are no longer a part of the case. The Company also re-filed a plea in bar on November 29, 2021 seeking to have the claims asserted against the Company in the 2021 Amended Complaint barred, in whole or in part, by the applicable statutes of limitations. A jury hearing on the plea in bar commenced on January 31, 2022. On February 9, 2022, the judge determined that he could decide the plea in bar without the jury and, on February 10, 2022, the judge entered a verdict granting the relief sought by the Company’s plea in bar motion with respect to the Virginia Computer Crimes Act, meaning the allegations asserted against the Company in the 2021 Amended Complaint with respect to the Virginia Computer Crimes Act are barred by the applicable statutes of limitations for conduct on or prior to May 29, 2015, while the claims made with respect to misappropriation of trade secrets under the Virginia Uniform Trade Secrets Act are not similarly barred. Appian’s claim for tortious interference with business expectancy was not a subject of the plea in bar. On February 11, 2022, the court allowed Appian’s motion to further amend the 2021 Amended Complaint to assert a damages claim of approximately $3 billion, seeking all of the Company’s revenues less estimated direct costs from the sale of all of the Company’s products and services in the period from the fourth quarter of 2013 through the third quarter of 2021. Virginia law requires that the plaintiff establish proximate cause between any alleged use of the alleged trade secrets and damages incurred by the plaintiff, and also requires plaintiffs seeking damages to allege a specific damages amount, prohibiting recovery beyond that amount. In addition to disputing the validity of Appian’s claims against the Company, the Company believes that any alleged damages claimed by Appian are not supported by the necessary legal standard of proximate cause. In addition, following the February 10, 2022 ruling on the Company’s plea in bar, the ongoing claim under the Virginia Computer Crimes Act is time limited to acts occurring after May 29, 2015. A jury trial with respect to the merits of the dispute is scheduled to begin on March 21, 2022. The Company believes the claims brought by Appian against the Company are without merit, that the Company has strong defenses to these claims and that, among other things, even were the jury to find that the Company misappropriated Appian’s alleged trade secrets, any alleged damages claimed by Appian are not supported by the necessary legal standard of proximate cause. The Company is unable to reasonably estimate possible damages or a range of possible damages given the Company’s belief that the damages claimed by Appian fail to satisfy the required legal standard and due to the uncertainty as to how a jury may rule. 23 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 24 PART II