Mattel 2006 Annual Report Download - page 51

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
unfair competition in violation of the applicable statutes. On January 12, 2007, the Court allowed Mattel to file
these claims as counterclaims in the consolidated cases, which Mattel did that same day. Neither Bryant nor the
MGA defendants have responded to the counterclaims.
Environmental
Beaverton, Oregon
Mattel previously operated a manufacturing facility on a leased property in Beaverton, Oregon that was
acquired as part of the March 1997 merger with Tyco Toys, Inc. In March 1998, samples of groundwater used by
the facility for process water and drinking water disclosed elevated levels of certain chemicals, including
trichloroethylene. Mattel immediately closed the water supply and self-reported the sample results to the Oregon
Department of Environmental Quality (“ODEQ”) and the Oregon Health Division. Mattel also implemented a
community outreach program to employees, former employees and surrounding landowners.
Prior to 2003, Mattel recorded pre-tax charges totaling $19.0 million related to this property. During 2004
and 2003, Mattel recognized pre-tax income of $0.9 million and $7.9 million, respectively, representing
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