302 F.3d 909 (9th Cir. 2002), 00-15166, Berkla v. Corel Corp.

Docket Nº:00-15166, 00-15350 and 00-15508.
Citation:302 F.3d 909
Party Name:Dennis BERKLA; Dennis Berkla, dba Digarts Software, Plaintiffs-Appellants, v. COREL CORPORATION, a Canadian corporation, Defendant-Appellee, and Corel Corporation (USA) Inc., Defendant. Page 910 Dennis Berkla, dba Digarts Software, Plaintiff-Appellant, v. Corel Corporation, a Canadian corporation; Corel Corporation (USA) Inc., Defendants-Appellees.
Case Date:May 09, 2002
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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302 F.3d 909 (9th Cir. 2002)

Dennis BERKLA; Dennis Berkla, dba Digarts Software, Plaintiffs-Appellants,


COREL CORPORATION, a Canadian corporation, Defendant-Appellee,


Corel Corporation (USA) Inc., Defendant.

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Dennis Berkla, dba Digarts Software, Plaintiff-Appellant,


Corel Corporation, a Canadian corporation; Corel Corporation (USA) Inc., Defendants-Appellees.

Dennis Berkla, dba Digarts Software, Plaintiff-Appellee,


Corel Corporation, a Canadian corporation; Corel Corporation (USA) Inc., Defendants-Appellants.

Nos. 00-15166, 00-15350 and 00-15508.

United States Court of Appeals, Ninth Circuit

May 9, 2002

Argued and Submitted March 13, 2002.

Amended Aug. 2, 2002.

Page 911

[Copyrighted Material Omitted]

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James E. Houpt, Orrick, Herrington & Sutcliffe LLP, Sacramento, CA, for Dennis Berkla.

Bradford C. Lewis and Patrick Eugene Premo, Fenwick & West LLP, Palo Alto, CA, for Corel Corporation and Corel Corporation (USA) Inc.

Appeal from the United States District Court for the Eastern District of California; Gregory G. Hollows, Magistrate Judge, Presiding. D.C No. CV 98-1159 GGH.

Before: HUG and TASHIMA, Circuit Judges, and SEDWICK, District Judge.[*]

Opinion by Judge TASHIMA; Partial Concurrence and Partial Dissent by Judge SEDWICK.


The opinion filed on May 9, 2002, slip op. at 6739, and reported at 290 F.3d 983, is withdrawn and replaced by the amended opinion filed concurrently with this order. With the filing of the amended opinion, the panel has voted to deny the petition for panel rehearing. Judge Tashima votes to deny the petition for rehearing en banc and Judges Hug and Sedwick so recommend. The full court has been advised of the petition for rehearing en banc and no judge of the court has requested a vote on en banc rehearing. See Fed. R.App. P. 35(f).

The petition for panel rehearing and the petition for rehearing en banc are denied.


TASHIMA, Circuit Judge.

Dennis Berkla designs electronic databases that allow users to create realistic images of natural settings on the computer screen. In 1997, Berkla contacted Corel Corporation ("Corel") and they initiated discussions about the possibility of Corel licensing Berkla's image file databases for inclusion in upcoming versions of Corel's software. After the parties executed a nondisclosure agreement ("NDA"), Berkla submitted to Corel some of his image file databases for evaluation. Corel eventually rejected Berkla's submission. Berkla later discovered that CorelDRAW 8, with its application program Photo Paint 8, contained

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image file databases similar to his own. Berkla brought this lawsuit against Corel, alleging copyright infringement, breach of contract, unfair business practices, and breach of confidence. After trial, the jury awarded Berkla compensatory and punitive damages.1 The district court disallowed the jury's award of punitive damages and denied both parties' motions for attorney's fees and costs. We have jurisdiction over these multiple appeals from the amended judgment and two postjudgment orders pursuant to 28 U.S.C. § 1291. We affirm in part and reverse in part.


A. Factual Background

Berkla is a visual artist from Chico, California, who, in 1994, started a small company, DigArts Software ("DigArts"), to design computer-based illustration tools. Berkla created image file databases, or nozzles, that contained images of plants and natural objects that were sprayed like paint out of an image hose tool to design realistic illustrations of trees and foliage. He released a variety of nozzle products under the names Garden Hose and Tubular Text. These nozzle products were not, by themselves, functional, but rather were designed to be used in connection with an image hose tool to create natural looking gardens and landscapes.

Fractal Design Corporation ("Fractal") is a computer software company that by 1994 had developed an image hose tool called Painter that enabled users to create graphics by spraying nozzle-based images. In 1995 and 1996, Berkla entered into two separate licensing agreements with Fractal that granted Fractal the right to distribute Berkla's Garden Hose 1.0 and Garden Hose 2.0 as stand alone CD-ROM add-ons to Fractal's Painter program. These agreements were concluded after Berkla threatened Fractal with litigation for including his protected ideas and designs in Fractal's Painter product in violation of the parties' NDA. Steve Guttman, Fractal's Vice President of Marketing, stated that the Garden Hose product was Fractal's best-selling add-on ever.

In 1996, Corel released Photo Paint 7, a graphics-design program within the Corel DRAW suite, which contained an image hose tool similar to Fractal's Painter. Photo Paint 7 was comprised of approximately ten nozzles that included images of foliage. On March 26, 1997, Berkla, who had initiated a business relationship with Corel as an independent "solutions partner," 2 sent an email to Doug Chomyn, Corel's product manager for Photo Paint:

I produce small, successful, add-on products for Fractal Design Corp. The products support Painter's Image Hose technology and go by the name Garden Hose. I'd like to support PhotoPaint's Image Sprayer as well. Before I can do that, however, I need to know what level of developer support Corel offers small independents such a[sic] DigArts? If you have any questions or wish to talk with me, please feel free to contact me. . . . If you're unfamiliar with the Garden Hose, you can view samples at: http://www.dcs-chico.com/digarts/.

Chomyn replied to Berkla's email on April 2, 1997:

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Thanks for the message, but it is not clear as to the nature of your "Add-on" products, or how they would relate to our Image Sprayer Tool; our Image Sprayer Tool implementation and capability is quite different from that of the Image Hose tool in Fractal Design's Painter. Could you give me some idea as to what you are looking for with respect to developer support? We do not "offer" any developer support per se, although we do sometimes contract work to out-of-house developers, and sometimes purchase the rights to third-party products.

Please send/transmit more information . . .

Berkla responded to Chomyn with several technical questions about Photo Paint. He then stated: "As for developer support in a financial sense, I'm not asking for money. I'm happy to take a look at manufacturing as a third party developer though I'd likely need some tangible form of marketing support. If your [sic] interested in purchasing rights, we can talk about that too." On April 3, Chomyn emailed Berkla the answers to his questions. He concluded by telling Berkla "[i]f you're selling files to be used as image lists ("nozzles"), I'd like to evaluate what you have to offer. If you'd be willing to send me copies for evaluation purposes, I'd happily oblige you with an evaluation copy of Photo-Paint 7 Plus." Berkla responded the next day that Chomyn had answered most of his questions and encouraged Chomyn to visit Berkla's website.

Chomyn responded on April 7: "If you're interested in selling 'nozzle' files to Corel, it would be good to get a graphical catalog and/or copies of what you have to offer. . . ." Berkla emailed Chomyn two days later that he would send him a CD with the relevant nozzle files: "If you're still interested after working with the files, we can discuss licensing terms." After Chomyn requested that Berkla send the nozzle files in a "universal format," Berkla sent the following email on April 11:

I'd like to send you some of the new stuff since that's what the product will contain. However, I'm not comfortable doing that without an NDA.

If you have a problem with NDA's [sic], I can simply send you the shrunk-wrap, Garden Hose CD since that grants you and [sic] end-user license. Unfortunately, it's a smaller, older product than the one I have in mind and doesn't contain the new files, which comprise over 35% of the content.

You can access some new, demo (smaller) nozzles via my web site. The end-user license will adequately cover my proprietary/intellectual property rights.

Chomyn replied two days later: "I'd be happy to sign your NDA on behalf of Corel. This is quite common; I'm often in the position of evaluating new stuff under these circumstances."

Chomyn executed the NDA and faxed it to Berkla on April 14. The NDA contained the following nondisclosure provision:

Recipient agrees that neither Recipient nor any of its employees or agents shall disclose or use (except for the purpose of providing the services or products that Recipient has agreed with the Company to provide or other purposes expressly agreed to in writing between the Company and Recipient) any Confidential Information. Recipient shall not communicate or disclose Confidential Information to any third party. Internal access shall be limited on a "need to know" basis for the purpose of providing the services or products that the Recipient has agreed with the Company that it will provide. Recipient shall neither use Confidential Information nor circulate it within its own organization except for

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the foregoing purposes. Recipient will maintain a list of Recipient personnel permitted access to the Confidential Information and will, upon request, provide the Company with a copy of the list.3

The NDA also provided that "[i]n any action relating to this Agreement, the non-prevailing party, shall pay the expenses (including without limitation reasonable attorneys' fees) of the prevailing party."

In mid-April 1997, after the NDA was signed, Berkla submitted a beta CD of his Garden Hose images to Chomyn for evaluation. Berkla's original...

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