Pegasystems Inc. v. Appian Corporation — Court Admits One Damages Expert But Excludes Key Portions of Another in False Advertising Dispute

Background

Pegasystems Inc. and Appian Corporation are competitors in the enterprise software market engaged in litigation involving allegations of false or misleading statements. Pega brought claims under the Lanham Act challenging statements made by Appian, while Appian counterclaimed regarding statements made by Pega. Both parties filed motions in limine seeking to exclude the other's expert testimony on damages.

In a previous order, the court resolved six of eight expert challenges but reserved decision on two: Pega's motion to exclude Dr. Marshall, Appian's expert who opined that ninety-five competitive sales opportunities were influenced by Pega's challenged statements, and Appian's motion to exclude Dr. McGahee, Pega's expert who sought to quantify economic harm from Appian's statements. The court scheduled a show-cause hearing to address concerns about the admissibility of portions of both experts' opinions regarding causation and quantification of harm.

The Court’s Holding

The court denied Pega's motion to exclude Dr. Marshall. Although Marshall conceded that his report provided no evidence that purchasing decisions were actually influenced by the challenged statements and clarified that 'influence' meant only that the statements were 'one of many factors,' the court found this qualified opinion admissible. The court also declined to exclude Appian's damages expert Dr. Vanderhart, whose $109 million disgorgement calculation relied on Marshall's opinions, reasoning that if causation is not required for disgorgement, Marshall's limitations are irrelevant, and if causation is required, Appian may establish it through fact witnesses.

The court granted in part Appian's motion to exclude Dr. McGahee. While McGahee's corrective-advertising opinion remained admissible, the court excluded his lost-profits and increased-costs opinions. McGahee employed a 'before and after' analysis comparing Pega's annual contract value growth before and after early 2023, assuming that only the Virginia litigation verdict and Appian's challenged statements could have caused changes in Pega's financial trajectory. The court found this approach failed to adequately account for obvious alternative explanations, such as currency fluctuations, macroeconomic factors, Pega's own business decisions, and the possibility that the statements merely reminded customers of the Virginia verdict rather than independently causing harm.

The court distinguished between causation as an element of Pega's Lanham Act claims—which Pega could establish through fact witnesses—and the separate causation required to link specific damages calculations to the challenged statements. McGahee's failure to establish the latter, including his unsupported assertion that the market would have ceased reacting to the May 2022 Virginia verdict by early 2023, rendered his lost-profits and increased-costs opinions inadmissible under Daubert and Federal Rule of Evidence 702.

Key Takeaways

• An expert may opine that challenged statements were 'reasonably likely' to be 'one of many factors' influencing procurement decisions without proving actual causation, provided the expert clarifies that 'influence' does not equate to a causal relationship.
• Damages experts may rely on another expert's qualified 'influence' opinion to calculate disgorgement, but the underlying expert's concession that no evidence shows actual influence may limit the weight of that testimony at trial.
• A 'before and after' damages analysis that assumes only two factors could have caused financial changes, while ignoring currency fluctuations, macroeconomic conditions, and the plaintiff's own strategic decisions, fails Daubert's requirement to account for obvious alternative explanations.
• An economist's ipse dixit assertion that a market would have stopped reacting to a litigation verdict within a specific timeframe, without modeling or empirical support, is insufficient to establish the duration of that verdict's impact on a company's finances.
• Establishing causation for liability purposes under the Lanham Act does not automatically establish causation for specific damages calculations; experts must separately link their quantified harm figures to the challenged conduct.

Why It Matters

This order illustrates the rigorous gatekeeping function courts perform under Daubert when evaluating damages experts in false advertising cases, particularly regarding the requirement to rule out alternative causes for alleged economic harm. The decision highlights the distinction between an expert's permissible assumption that liability exists and the expert's independent obligation to demonstrate that specific damages calculations are reliably tied to the challenged conduct.

The ruling also clarifies that in the enterprise software context, where sales cycles are long and complex, experts cannot simply attribute post-period financial changes to false statements without accounting for the lingering effects of prior litigation verdicts, macroeconomic conditions, and the plaintiff's own business strategies. The court's willingness to admit qualified 'influence' testimony while excluding unsupported 'but-for' causation analyses provides a roadmap for how damages experts must navigate the line between assumption and proof in Lanham Act cases.