Mattel 2005 Annual Report Download - page 90

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In November 2002, the parties to the federal cases negotiated and thereafter memorialized in a final
settlement agreement a settlement of all the federal lawsuits in exchange for payment of $122.0 million and
Mattel’s agreement to adopt certain corporate governance procedures. The District Court granted final approval
to the settlement in September 2003, and judgments were entered accordingly. On October 9, 2003, a group of
persons purporting to be members of the §14(a) class (such group of persons, the “Appellant”) filed a notice of
appeal, challenging the manner in which the $122.0 million was allocated between the §10(b) class and the
§14(a) class. On July 29, 2005, the United States Court of Appeals for the Ninth Circuit affirmed the District
Court’s approval of the settlement. At the end of October 2005, the Appellant filed a petition for writ of certiorari
before the United States Supreme Court, which was denied by that Court on January 9, 2006. The Appellant’s
time to seek rehearing of the denial of review has expired, and thus the District Court’s approval of the settlement
has become final.
Litigation Related to LeapFrog Enterprises, Inc.
Fisher-Price, Inc. (“Fisher-Price”), a subsidiary of Mattel, was sued for patent infringement by LeapFrog
Enterprises, Inc. in a lawsuit filed in October 2003 in the United States District Court for the District of
Delaware, and in September 2004, Mattel was joined to the lawsuit as a defendant. The lawsuit alleges that
Fisher-Price’s PowerTouch™system infringes a LeapFrog patent relating to an electronic learning device for
teaching phonics. A 10-day trial commenced on May 16, 2005, which resulted in a deadlocked jury. As an
alternative to retrying the case, the parties agreed to submit the case for decision, based on the current trial
record, to the presiding judge. The parties have filed their post-trial briefs, and the Court has not yet rendered a
decision. The plaintiff in this lawsuit asserted a total damages claim of up to approximately $90 million, which
has been reduced to approximately $58 million pursuant to rulings by the Court, and seeks an injunction
preventing the further sale of the PowerTouch™system; the damages could possibly be trebled if the
infringement is found to be willful. Mattel and its subsidiary Fisher-Price believe the action is without merit and
intend to continue to vigorously defend themselves.
Litigation Related to Carter Bryant and MGA Entertainment, Inc.
In April 2004, Mattel filed a lawsuit in Los Angeles County Superior Court against Carter Bryant
(“Bryant”), a former Mattel design employee. The suit alleges that Bryant aided and assisted a Mattel competitor,
MGA Entertainment, Inc. (“MGA”), during the time he was employed by Mattel, in violation of his contractual
and other duties to Mattel. In September 2004, Bryant asserted counterclaims against Mattel, including
counterclaims in which Bryant seeks, as a putative class action representative, to invalidate Mattel’s Confidential
Information and Propriety Inventions Agreements with its employees.
In December 2004, MGA intervened as a party-defendant in Mattel’s action against Bryant, asserting that its
rights to the “Bratz” property are at stake in the litigation. Mattel’s suit has been removed to the United States
District Court for the Central District of California, where it is currently pending.
Separately, in November 2004, Bryant filed an action against Mattel in the United States District Court for
the Central District of California. The action seeks a judicial declaration that Bryant’s purported conveyance of
rights in “Bratz” was proper and that he did not misappropriate Mattel property in creating “Bratz.”
In April 2005, MGA filed suit against Mattel in the United States District Court for the Central District of
California. MGA’s action alleges claims of trade dress infringement, trade dress dilution, false designation of
origin, unfair competition and unjust enrichment. The suit alleges, among other things, that certain products,
themes, packaging and/or television commercials in various Mattel product lines have infringed upon products,
themes, packaging and/or television commercials for various MGA product lines, including “Bratz.” The
complaint also asserts that various alleged Mattel acts with respect to unidentified retailers, distributors and
licensees have damaged MGA and that various alleged acts by industry organizations, purportedly induced by
Mattel, have damaged MGA.
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