Mattel 2006 Annual Report Download - page 102

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 existing trial
record, to the presiding judge. The plaintiff in this lawsuit asserted a total damages claim of up to approximately
$90 million, which was reduced to approximately $58 million pursuant to rulings by the Court, and sought an
injunction preventing the further sale of the PowerTouch™system; the damages could possibly have been trebled
if a willful infringement had been found. On March 30, 2006, the Court issued a Memorandum and Order
holding that Mattel and Fisher-Price did not infringe LeapFrog’s patent and furthermore holding that LeapFrog’s
patent claim, which was the basis of LeapFrog’s lawsuit, was invalid due to obviousness. On May 1, 2006,
LeapFrog filed an appeal of the Court’s ruling with the Court of Appeals for the Federal Circuit. Both parties
have filed their briefs with regard to the appeal, and the Court of Appeals has scheduled a hearing on March 7,
2007 for oral arguments. Mattel and its subsidiary Fisher-Price continue to believe the action is without merit and
intend to continue defending themselves vigorously.
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 sought, as a putative class action representative, to invalidate Mattel’s Confidential Information
and Proprietary 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 was removed to the United States District Court for the Central District of California.
Separately, in November 2004, Bryant filed an action against Mattel in the United States District Court for
the Central District of California. The action sought 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. MGA’s suit alleges that MGA has been damaged in an amount “believed to reach
or exceed tens of millions of dollars” and further seeks punitive damages, disgorgement of Mattel’s profits and
injunctive relief.
In June 2006, the three cases were consolidated in the United States District Court for the Central District of
California. On July 17, 2006, the Court issued an order dismissing all claims that Bryant had asserted against
Mattel, including Bryant’s purported counterclaims to invalidate Mattel’s Confidential Information and
Proprietary Inventions Agreements with its employees, and Bryant’s claims for declaratory relief. Although
Bryant was given leave by the Court to file amended claims consistent with the Court’s rulings, Bryant did not do
so within the time period allowed. Mattel believes the claims against it are without merit and intends to continue
to vigorously defend against them.
In November 2006, Mattel asked the Court for leave to file an Amended Complaint that included not only
additional claims against Bryant, but also included claims for copyright infringement, RICO violations,
misappropriation of trade secrets, intentional interference with contract, aiding and abetting breach of fiduciary
duty and breach of duty of loyalty, and unfair competition, among others, against MGA Entertainment, Inc.,
Isaac Larian, certain MGA affiliates and an MGA employee. The basis for the Amended Complaint was the
MGA defendants’ infringement of Mattel’s copyrights and their pattern of misappropriation of trade secrets and
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