July 18 (Bloomberg) -- Mattel Inc., the world's largest toymaker, surged the most in almost six years in New York trading after posting profit that fell less than analysts estimated and winning a jury verdict against MGA Entertainment Inc. over the origin of the Bratz dolls.

Second-quarter net income dropped 48 percent to $11.8 million, or 3 cents a share, as legal expenses rose, the maker of Barbie dolls and Hot Wheels said today. A jury said yesterday that a former employee made original drawings of MGA's Bratz while he still worked at Mattel.

International sales climbed 15 percent, helped by the dollar's decline. Mattel shipped Batman toys in the second quarter tied to Warner Bros.' ``The Dark Knight'' film. Mattel may be able to use movie products tied to Batman and ``Kung Fu Panda,'' and price increases to counter decreases in Barbie as well as higher costs for plastics, Chinese labor and shipping.

``The quarter was a perfect storm of a difficult operating environment with higher costs and Barbie down 21 percent in the U.S., but movie properties helped offset that,'' Chris White, an analyst at Wedbush Morgan Securities, said today in a telephone interview. ``The legal decision was the icing on the cake.''

Sales rose 11 percent to $1.11 billion, El Segundo, California-based Mattel said in a statement. Selling and administrative expenses climbed to 31.3 percent of sales, hurt by legal costs from the MGA suit and litigation related to last year's recall of 21 million Chinese-made products.

Mattel climbed $2.38, or 13 percent, to $20.66 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest gain since October 2002. The shares have gained 8.5 percent this year, trailing the 49 percent increase at smaller Hasbro Inc.

`They Beat'

``This quarter was the perfect quarter to miss and to disappoint investors with all the higher legal, commodity and recall costs, and they beat,'' said White, based in Los Angeles. He recommends buying shares and doesn't own any.

A federal jury in Riverside, California, agreed that designer Carter Bryant made most of the first sketches of the pouty, multiethnic Bratz characters while he was employed by Mattel in 1999 and 2000. The verdict helps clear the way for Mattel to seek hundreds of millions of dollars in damages for copyright infringement from closely held MGA.

The jury found that Bryant had conceived the Bratz characters and name while he was employed by Mattel and that MGA and its chief executive officer, Isaac Larian, were liable for intentional interference with Bryant's Mattel contract.

`Fair Play'

``The jury's verdict was a victory, not only for Mattel, but for all those who believe in fair play,'' Mattel Chief Executive Officer Bob Eckert said today during a conference call with investors. ``This verdict is just part one of a two- part trial, so although it's an important step in the right direction, the trial hasn't yet been concluded.''

The decision is a ``solid positive'' for Mattel, Sean McGowan, an analyst at Needham & Co., wrote today in a research note. The ``ultimate value'' for Mattel ranges from a ``modest positive'' to at most $3 to $4 a share, he wrote. He recommends buying the stock.

Eleven analysts surveyed by Bloomberg projected average second-quarter profit of 2 cents. Nine estimated sales of $1.03 billion. Mattel posted profit of $22.8 million, or 6 cents, a year earlier.

Price Increases

Mattel implemented ``mid-to-high-single digit'' price increases on a percentage basis on June 1, which should help bolster earnings in the second half of the year, Chief Financial Officer Kevin Farr said on the call. The toymaker may have lower recall and legal expenses in the second half of the year compared with the first, and still sees ``pressures'' from higher raw material costs, he said.

Mattel Girls and Boys brands increased 13 percent to $721.7 million. Barbie sales declined 6 percent after plunging 21 percent in the U.S. and rising 3 percent overseas. Other girls' brands including High School Musical gained 27 percent. Entertainment sales advanced 14 percent, while Hot Wheels, Matchbox and other vehicle revenue surged 32 percent.

Fisher-Price infant and preschool products rose 4.3 percent. American Girl doll sales jumped 9.5 percent to $61.1 million on products related to ``Kit Kittredge: An American Girl'' film.

The recalls of Sesame Street vehicles with paint containing excessive amounts of lead and Polly Pocket dolls with magnets that may detach and get swallowed cost Mattel $110 million in 2007 for toy returns and legal, advertising and testing expenses.

Hasbro, the maker of Monopoly board games and Transformers action figures, is scheduled to release its second-quarter results on July 21.

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To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: July 18, 2008 16:12 EDT