Ellie Shapiro at her home workshop in Los Angeles.

Big Toy Makers Clash With the Inventors They Depend On

Companies like Hasbro rely on an army of freelance inventors, but recent lawsuits claim they don't always pay for the ideas.

In 2012, Ellie Shapiro invented a new kind of toy: little animal figurines with snow globes in their bellies. Shapiro called them Wishables, and she loved them, which meant something. Before her nearly two decades as a toy inventor, the 53-year-old had spent 10 years as an executive at toy-industry titans Mattel Inc. and Walt Disney Co. and worked on such major brands as Barbie and Disney Princess.

In June, Shapiro started pitching to toymakers. By November, toy giant Hasbro Inc. asked her to submit ideas for some of its largest brands, including My Little Pony and Littlest Pet Shop. About five months later, in April 2013, she signed a confidentiality agreement and delivered her Wishables pitch to three Hasbro executives in a suite at a DoubleTree Hotel in Santa Monica, Calif. Her presentation centered on a make-believe world filled with characters such as Riskers the Kitty and Moonzy the Fawn. She had made plastic prototypes and sample packaging and shared her own focus-group testing. She laid out ideas for line extensions such as playsets and licensing. She was thorough.

“The heartbeat of a lot of toy companies is the inventor community”

The Hasbro executives liked her presentation enough that they asked her to send samples to the company’s headquarters in Pawtucket, R.I., and upload her presentation to their server. But after reviewing it exclusively for almost three months, Hasbro told her in July 2013 that it was passing on the idea. Shapiro says she continued trying to find a home for Wishables until the fall of 2014, when she walked into her local Target store in Eagle Rock, Calif., and saw a new toy on the shelf. It was a little animal figurine that doubled as a snow globe. It had been made by Hasbro.

Thus goes the symbiotic, yet often strange and tenuous relationship between toy inventors and toy companies. For starters, they need each other. Inventors can try to go it alone, but it’s often too expensive, so few do. Crowdfunding is a burgeoning option, but sustaining an invention through marketing and distribution is still highly difficult. Making a living for most means pitching to toymakers (what most inventors simply call “marketing companies”) and getting paid a royalty of about 5 percent of the sales for the ideas that go to market. And even though companies employ hundreds of people to develop new toys, they still rely on outside submissions for some of their biggest and most creative hits.

Shapiro wearing the ScareDcats hair clip she developed. Toy inventors can try to go it alone, but it’s often too expensive, so few do.
Photographer: Graham Walzer for Bloomberg

For example, former NASA engineer Lonnie Johnson created a high-powered water gun that was acquired by Hasbro, which then turned it into its gigantic Super Soaker franchise. Such hits as Monopoly and Rubik's Cube are also on that list. Freelance inventors basically serve as an arm of development—one that works faster and more nimbly because they aren't held back by big company bureaucracy, says Peter Wachtel, a Los Angeles-based toy inventor who was previously an executive at toymaker Jakks Pacific Inc. This is what happened in the Shapiro case, according to an e-mail filed in court, with Hasbro's inventor relations team asking for submissions such as dolls that employ the “hottest girls trends” or “low cost innovation” for Littlest Pet Shop.

“These outside inventors are all over the globe and doing all kinds of crazy stuff, and that's where the ideas come from,” Wachtel said. “The heartbeat of a lot of toy companies is the inventor community.”

Yet allegations of stealing are rampant to the point of routine. Many inventors largely chalk it up as an unavoidable part of the job: Either accept that some of your ideas are going to be lifted, or pursue another career, says Louise White, who’s been inventing toys for more than 15 years. Companies have borrowed from her submissions too many times to count. But there have been at least five instances when she was blatantly ripped off. The most egregious came when she says a manufacturer, whom she declined to identify, didn’t even bother changing the name of the bath toy idea it stole. When she complained, the company said it would get its lawyers involved. She balked. Legal action is risky because it can get an inventor branded sue-happy and dry up opportunities, plus few have the money to fund a suit, she says.

“They know you are the little guy and know you won’t waste the time and money bringing a lawsuit,” said White, who lives in Long Branch, N.J. “It makes you angry, but after a while you just shrug your shoulders.”

At the minimum, White can punish companies that have wronged her by crossing them off her pitch list. But there are fewer toymakers, after years of consolidation, and if you have a relationship with a big one you’ll overlook stealing to keep it, says Linda Simonin. She once submitted an idea for putting a doll on a skateboard, making the case that girls actually dug skating. A room of male executives scoffed, saying their market research didn’t back that up. Still, the company, which she declined to name, looked at her prototype for months before passing. Then that idea showed up in its product line, with the company explaining one of its designers had already been working on it. Despite this, she kept pitching that company expecting that it would eventually buy. It did.

“They will borrow from you a lot until they sense a point that they need to purchase something from you to keep you coming back,” said San Francisco-based Simonin, whose inventions include those giant snow globes people put on their lawns during Christmas. “They took. They took. They took. And then ... bam. They bought. It helps you forget.”

Shapiro displays three characters from her Zombilocks line. Legal action against big toy companies is risky because it can get an inventor branded sue-happy and dry up opportunities.
Photographer:Graham Walzer for Bloomberg

Shapiro doesn’t buy it. “At first, I was in shock and in disbelief,” she said in an interview. “Then I felt completely sick.”

She had sued before—a 2014 action against Australia-based Moose Enterprises was settled—and complained about Hasbro a decade ago. That time she says Hasbro pilfered an idea she pitched for using the long, spiky hair associated with those little troll dolls on pretty girl dolls. Her lawyer sent a letter asking to be compensated. Hasbro ignored her, and she dropped it. But when the Wishables incident happened, she couldn’t let it go. Now she’s chosen the rare step of taking on an industry giant.

“It’s never OK to steal from people,” Shapiro said. “That can’t be a part of our business model.”

According to a lawsuit she filed last year that could go to trial in September, the My Little Pony figure was filled with glitter-infused liquid like a snow globe—the centerpiece of her pitch to Hasbro. She later found a Littlest Pet Shop toy that also appeared to replicate her submission. When she asked Hasbro to be compensated, it brushed her off for months, the suit says. The world’s second-largest toymaker later responded that snow globes had already been used in toys, so this wasn’t a novel approach. Plus, the genesis of the toys Shapiro says Hasbro stole had come from its in-house design staff in 2012, before her submission.

In an e-mailed statement, Hasbro said Shapiro’s case is “without merit” and that “we deeply value our longstanding relationships with the hundreds of inventors we work with and we engage with them in a collaborative, fair and mutually beneficial process.”

In any business relationship, both sides have incentives to be good actors. And while the scales are weighted in favor of the toy companies, because of their huge advantage in financial resources, they also face risks, says Ross Dannenberg, an intellectual property lawyer in Washington, D.C., for Banner & Witcoff.

“If Hasbro gets a reputation [for] stealing ideas, people are going to stop submitting ideas to them,” said Dannenberg, author of the American Bar Association’s Legal Guide to Video Game Development. And that would hurt innovation and ultimately sales, he said. Plus, getting in front of a jury brings risks, because they’re likely to look at the toy company “as the big, bad corporation trying to steal from little, individual inventors” and that can lead to a hefty award for damages, he said. Even not facing a jury can be risky. In February 2014, Hasbro settled with Johnson, the Super Soaker inventor, for $58 million after he brought claims of failure to pay some royalties.

Shapiro, it turns out, isn’t the only litigious toy inventor. There’s also Marisa Pawelko, who claimed in May that Hasbro stole her idea for a “liquid mosaic” that used what looks like a caulking gun to bespeckle objects. Hasbro used her submission to create DohVinci, a successful line of decorating kits that uses a kind of caulk gun-styled applicator that had the goal of attracting older kids to its Play-Doh brand, the lawsuit says.

And in April last year, three former longtime Hasbro executives sued the toymaker for lifting an idea for action figures with interchangeable body parts (think combining a different head, torso, and legs in one body). The pitch came in February 2011, and two years later Hasbro introduced Marvel Superhero Mashers, which allow kids to mix and match body parts, like putting Captain America’s head on the Hulk’s body. Hasbro has since expanded the masher concept to its other biggest brands—Star Wars and Transformers.

“He also said he often disagreed with executives in other parts of the company, such as research and development. Sometimes his recommendation to pay an inventor wasn’t followed, he said”

Hasbro said that the allegations in these two cases are also “without merit.”

One of the former executives suing is Steven D’Aguanno, who not only worked at Hasbro for three decades but also ran inventor relations for several years. It was D’Aguanno’s job to find hit products for Hasbro and oversee the submission and royalty process that he’s now claiming wronged him. In a deposition for Shapiro’s case, D’Aguanno, who left Hasbro in 2006, described how Hasbro dealt with claims from inventors of not being compensated. He said there were many instances where the legitimacy of an inventor’s claims wasn’t clear, which is understandable, because toy companies receive hundreds, if not thousands, of submissions a year and develops oodles of ideas in house. He also said he often disagreed with executives in other parts of the company, such as research and development. Sometimes his recommendation to pay an inventor wasn’t followed, he said.

“There were different opinions because it was never really black and white,” D’Aguanno, who has been credited with co-creating the My Little Pony brand, said in the deposition. “It was common.”

Steve Rehkemper has been creating toys since the early 1980s and says inventors are getting squeezed more than ever because of increased pressure on the toymaker’s operating model. The industry has become overly reliant on licensed items—such as all those Frozen dolls and Star Wars lightsabers. They come with a hefty royalty for the intellectual property holders, such as Disney, so adding another payment for an inventor may be too much. There are also rising labor costs in Asia. And the discounting of Wal-Mart Stores Inc. and Amazon.com Inc. creates a ceiling on prices, which forces toymakers to remove costs wherever they can, he said. His company currently has a lawsuit against Canadian toymaker Spin Master Corp. for breach of contract and patent infringement.

Shapiro hold up a toy from her Zomboys collection. Mobile devices are luring kids away from traditional toys at earlier ages, leaving toymakers grasping for innovations to win back kids from their screens.
Photographer: Graham Walzer for Bloomberg

Toy companies are “stuck in the middle, and it squeezes inventors out the side because they just can’t afford that 5 percent royalty in there,” said Rehkemper, whose design firm’s inventing credits include remote-control planes and helicopters.

Increasing hurdles for toy inventors are coming at a particularly trying time for the industry. The explosion of mobile devices is luring kids away from traditional toys at earlier ages than previous generations. That has left toymakers grasping for innovations to win back kids from their screens.

“If the inventing community was healthier, the marketing companies faced with marketing against iPads and Pokémon Go would have more to offer,” Rehkemper said.

For her part, Shapiro says she’s not abandoning the profession, but the Wishables incident has her rethinking how she’ll now deal with toymakers.

“I have to find a new way to get my inventions out there,” Shapiro said. “I can’t not do what I do because I love it. And I also think I’m good at it.”