Mattel Loses Appeal Ruling Over Ownership of MGA’s Bratz Dolls

Isaac Larian, CEO of MGA Entertainment Co.
Isaac Larian, president and chief executive officer of MGA Entertainment Co. Photographer: Daniel Acker/Bloomberg

Mattel Inc. must retry its claims to MGA Entertainment Inc.’s Bratz dolls after an appeals court overturned a judge’s finding that Mattel owned the ideas and work of a former employee who first thought of the dolls.

The ruling may make it more difficult for corporations to claim ownership of their employees’ ideas, particularly if they are conceived in a private context, said Carole Handler, an intellectual property lawyer with Lathrop and Gage LLP in Los Angeles who isn’t involved in the case.

“This has enormous importance for a host of legal cases that come up quite frequently,” Handler said in a phone interview. “It raises many issues.”

The U.S. Court of Appeals in San Francisco yesterday overturned a December 2008 order that gave Mattel the rights to most of MGA’s Bratz products. A jury in the case found that the designer who created the dolls was working at Mattel when he conceived of the idea and the name and made the initial drawings for the pouty and multiethnic girls.

“Even assuming that MGA took some ideas wrongfully, it added tremendous value by turning the ideas into products and, eventually, a popular and highly profitable brand,” the appellate panel said in an opinion written by Chief Judge Alex Kozinski. “It is not equitable to transfer this billion-dollar brand, the value of which is overwhelmingly the result of MGA’s legitimate efforts, because it may have started with two misappropriated names.”

Barbie Song

The ruling is in line with Kozinski’s previous decisions in support of free discourse, including a 2002 ruling throwing out a trademark-infringement lawsuit filed by Mattel against a Danish band over a song poking fun at Mattel’s Barbie doll, Handler said.

“He’s not a big fan of idea ownership,” she said of Kozinski.

The appeals court said a significant part of the jury verdict and damages award likely needs to be vacated and that the entire case probably will need to be retried.

In particular, a jury would have to decide whether Mattel, under the employment agreement with its former employee, is entitled to his ideas and to his drawings if they weren’t part of his work for the toymaker, the three-member panel said.

U.S. District Judge Stephen Larson, who oversaw the case and has since returned to private practice, ruled before the trial that under the agreement, Mattel had the rights to the designer’s works.

‘Compelling Case’

“We look forward to a full trial on all Mattel’s claims against MGA,” El Segundo, California-based Mattel said yesterday in a statement. “We believe that such a trial will present a comprehensive and even more compelling case for Mattel than was possible with a divided trial.”

Isaac Larian, founder and chief executive officer of Van Nuys, California-based MGA, said in a statement that the company is deeply grateful to the court for confirming “that the American dream lives.” The company will launch a “stunning new line of Bratz products,” Larian said.

The jury in Riverside, California, found that the employee, Carter Bryant, came up with the Bratz idea and made most of the original sketches for it while he was still at Mattel. It awarded Mattel $100 million in damages, 5 percent of the $2 billion the toymaker sought.

Larson ruled that most of MGA’s Bratz doll line infringed Bryant’s initial drawings of the dolls that, under the jury’s finding and his pretrial ruling, belonged to Mattel. The appellate court said Larson was wrong to conclude that most of MGA’s Bratz dolls were substantially similar to Bryant’s sketches.

‘Breathtaking Opinion’

“This is a breathtaking opinion by a unanimous panel of the Ninth Circuit,” Thomas Nolan, a lawyer with Skadden, Arps, Slate, Meagher & Flom LLP, who represented MGA during the trial, said in a statement. “The panel endorsed all of the arguments that MGA has been advancing throughout this protracted litigation.”

The 2008 trial was the first of two scheduled phases. Mattel and closely held MGA are preparing for the second, which includes Mattel’s racketeering claims against MGA. U.S. District Judge David Carter in Santa Ana, California, who took over the case form Larson, hasn’t set a trial date.

Mattel rose 39 cents, or 1.9 percent, to $21.05 in Nasdaq Stock Market trading yesterday. The shares have gained 5.4 percent this year.

The case is MGA Entertainment Inc. v. Mattel Inc., 09-55673, U.S. Court of Appeals for the Ninth Circuit (San Francisco. The district court case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Riverside).

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