Mattel 2012 Annual Report Download - page 102

the Court issued a series of orders rejecting MGA’s equitable defenses and granting Mattel’s motions for
equitable relief, including an order enjoining the MGA party defendants from manufacturing, marketing, or
selling certain Bratz fashion dolls or from using the “Bratz” name. The Court stayed the effect of the
December 3, 2008 injunctive orders until further order of the Court and entered a further specified stay of the
injunctive orders on January 7, 2009.
The parties filed and argued additional motions for post-trial relief, including a request by MGA to enter
judgment as a matter of law on Mattel’s claims in MGA’s favor and to reduce the jury’s damages award to
Mattel. Mattel additionally moved for the appointment of a receiver. On April 27, 2009, the Court entered an
order confirming that Bratz works found by the jury to have been created by Bryant during his Mattel
employment were Mattel’s property and that hundreds of Bratz female fashion dolls infringe Mattel’s copyrights.
The Court also upheld the jury’s award of damages in the amount of $100 million and ordered an accounting of
post-trial Bratz sales. The Court further vacated the stay of the December 3, 2008 orders, except to the extent
specified by the Court’s January 7, 2009 modification.
MGA appealed the Court’s equitable orders to the Court of Appeals for the Ninth Circuit. On December 9, 2009,
the Ninth Circuit heard oral argument on MGA’s appeal and issued an order staying the District Court’s equitable
orders pending a further order to be issued by the Ninth Circuit. The Ninth Circuit opinion vacating the relief ordered
by the District Court was issued on July 22, 2010. The Ninth Circuit stated that, because of several jury instruction
errors it identified, a significant portion—if not all—of the jury verdict and damage award should be vacated.
In its opinion, the Ninth Circuit found that the District Court erred in concluding that Mattel’s Invention
agreement unambiguously applied to “ideas;” that it should have considered extrinsic evidence in determining
the application of the agreement; and if the conclusion turns on conflicting evidence, it should have been up to
the jury to decide. The Ninth Circuit also concluded that the District Judge erred in transferring the entire brand
to Mattel based on misappropriated names and that the Court should have submitted to the jury, rather than
deciding itself, whether Bryant’s agreement assigned works created outside the scope of his employment and
whether Bryant’s creation of the Bratz designs and sculpt was outside of his employment. The Court then went
on to address copyright issues which would be raised after a retrial, since Mattel “might well convince a properly
instructed jury” that it owns Bryant’s designs and sculpt. The Ninth Circuit stated that the sculpt itself was
entitled only to “thin” copyright protection against virtually identical works, while the Bratz sketches were
entitled to “broad” protection against substantially similar works; in applying the broad protection, however, the
Ninth Circuit found that the lower court had erred in failing to filter out all of the unprotectable elements of
Bryant’s sketches. This mistake, the Court said, caused the lower court to conclude that all Bratz dolls were
substantially similar to Bryant’s original sketches.
Judge Stephen Larson, who presided over the first trial, retired from the bench during the course of the
appeal, and the case was transferred to Judge David O. Carter. After the transfer, Judge Carter granted Mattel
leave to file a Fourth Amended Answer and Counterclaims which focused on RICO, trade secret and other
claims, and added additional parties, and subsequently granted in part and denied in part a defense motion to
dismiss those counterclaims. Later, on August 16, 2010, MGA asserted several new claims against Mattel in
response to Mattel’s Fourth Amended Answer and Counterclaims, including claims for alleged trade secret
misappropriation, an alleged violation of RICO, and wrongful injunction. Mattel moved to strike and/or dismiss
these claims, as well as certain MGA allegations regarding Mattel’s motives for filing suit. The Court granted
that motion as to the wrongful injunction claim, which it dismissed with prejudice, and as to the allegations about
Mattel’s motives, which it struck. The Court denied the motion as to MGA’s trade secret misappropriation claim
and its claim for violations of RICO.
The Court resolved summary judgment motions in late 2010. Among other rulings, the Court dismissed both
parties’ RICO claims; dismissed Mattel’s claim for breach of fiduciary duty and portions of other claims as
“preempted” by the trade secrets act; dismissed MGA’s trade dress infringement claims; dismissed MGA’s
unjust enrichment claim; dismissed MGA’s common law unfair competition claim; and dismissed portions of
Mattel’s copyright infringement claim as to “later generation” Bratz dolls.
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