Dec. 11 (Bloomberg) -- Mattel Inc.’s trial loss in its eight-year fight with Bratz doll maker MGA Entertainment Inc. was questioned by the same federal appeals court panel that two years ago threw out Mattel’s earlier victory over its rival.
The three U.S. Court of Appeal judges, at a hearing yesterday in Pasadena, California, challenged MGA’s lawyer Clifford Sloan on how the toymaker could have brought its trade-secret theft counterclaims, on which it won $160 million in compensatory and punitive damages, into the case in 2010, six years after Mattel said MGA should have known of the alleged thefts.
Mattel’s lawyer, Kathleen Sullivan, told the panel that MGA’s counterclaims were brought after the statute of limitations had run and only should have been allowed in the case by the judge overseeing the trial if they were so-called compulsory counterclaims, based on the same facts as Mattel’s trade-secret theft claims against MGA.
“If it isn’t a compulsory counterclaim, it doesn’t belong in this lawsuit,” Circuit Judge Kim McLane Wardlaw said to Sloan, adding that MGA may have to return to the lower court and file a separate lawsuit. “If I were you, I’d be filing that claim tomorrow.”
Chief Judge Alex Kozinski told MGA’s lawyer that, because the jury hadn’t been asked to decide whether the company couldn’t have known about the alleged thefts before 2010, he would be “out of luck” if the appellate panel didn’t buy his argument that MGA’s trade-secret theft claims were logically related to Mattel’s and, as such, allowed as counterclaims.
‘I Could Steal’
“I could steal from you and you could steal from me,” Kozinski said. “That doesn’t mean there’s a relationship.”
Kozinski in 2010 wrote the opinion that overturned a series of rulings by the judge who presided over the first trial between Mattel and MGA over the Bratz dolls in 2008 and who had given Mattel almost complete ownership of MGA’s Bratz brand after the jury had awarded Mattel $100 million in damages.
U.S. District Judge David Carter in Santa Ana, California, who presided over the second trial last year, denied Mattel’s motion to dismiss MGA’s claims that Mattel employees, using fake business cards, snuck into MGA’s showrooms at toy fares and gained proprietary information about its plans for new dolls and marketing strategy.
The jury awarded closely held MGA $88.5 million in damages on its trade secret-theft claims, which Carter later reduced $85 million and then doubled by adding $85 million in punitive damages.
Carter also awarded MGA $2.52 million in fees and costs for its trade-secret claim, in addition to $105.6 million in lawyer fees and $31.6 million in costs for Mattel’s copyright claim, which the judge said “imperiled free expression, competition, and the only serious competitor Mattel had faced in the fashion doll market in nearly 50 years.”
Mattel, based in El Segundo, no longer argues, after two trials and more than eight years of litigation, that MGA infringes its copyright because the first Bratz sketches were made by a Mattel designer. Mattel now contends the “jaw-dropping” $137.2 million in legal fees it was ordered to pay MGA for having to defend the copyright claim is unjustified.
“Mattel knows of no copyright fee and cost award that was similarly shifted on a claim that had been successful before one jury, had resulted in substantial relief from a federal district judge, and was remanded by a court of appeals before being unsuccessful before a second jury,” the company said in its Feb. 27 appeal. “Nor is Mattel aware of any copyright fee and cost award of similar magnitude.”
In 2010, the appeals court panel said that, even if Mattel were to convince a jury that it owned the original Bratz sketches made by its former employee, Carter Bryant, it would only entitle it to ownership of that particular expression of the bratty-doll type, not to the idea itself.
“Degas can’t prohibit other artists from painting ballerinas, and Charlaine Harris can’t stop Stephenie Meyer from publishing Twilight just because Sookie came first,” the circuit court’s chief judge, Alex Kozinski, said in that ruling. “Similarly, MGA was free to look at Bryant’s sketches and say, ‘Good idea! We want to create bratty dolls too.’”
Sloan told the appellate panel that Carter’s ruling, allowing the MGA’s counterclaims to go forward, was consistent with judiciary efficiency because after six years of “scorched-earth litigation,” it would have been a burden on judicial resources to have two separate trials on closely related issues.
MGA’s lawyer told the judge that the company couldn’t have known about the trade-secret thefts by Mattel’s market intelligence group because until 2010 Mattel’s executives had lied in depositions.
MGA, based in Van Nuys, California, said the $310 million verdict is “but a drop in the bucket” compared to the harm Mattel caused MGA through “its litigation strategy of destroying Bratz.”
“Mattel’s quest to overturn the jury verdict on sufficiency grounds faces a high bar, and here it is insurmountable,” MGA said in its response to Mattel’s appeal. “What the district court termed the ‘rich evidentiary record’ easily supports the jury’s finding that Mattel misappropriated MGA’s trade secrets and the jury’s damages award.”
The case is Mattel Inc. v. MGA Entertainment Inc., 11-56357, U.S. Court of Appeals for the Ninth Circuit (San Francisco).
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