Mattel 2008 Annual Report Download - page 96

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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. Mattel believes
the remaining MGA 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, its CEO 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 granted Mattel leave to file these claims as
counterclaims in the consolidated cases, which Mattel did that same day.
In February 2007, the Court decided that the consolidated cases would be tried in two phases, with the first
trial to determine claims and defenses related to Mattel’s ownership of Bratz works and whether MGA infringed
those works. The second trial, which is currently scheduled to commence in spring 2010, will consider both
Mattel’s separate claims for misappropriation of trade secrets and violations of the RICO statute and MGA’s
claims for unfair competition.
On May 19, 2008, Bryant reached a confidential settlement agreement with Mattel and is no longer a
defendant in the litigation. In the public stipulation entered by Mattel and Bryant in connection with the
resolution, Bryant agreed that he was and would continue to be bound by all prior and future Court Orders
relating to Bratz ownership and infringement, including the Court’s summary judgment rulings.
The first phase of the first trial, which began on May 27, 2008, resulted in a unanimous jury verdict on
July 17, 2008 in favor of Mattel, finding that almost all of the Bratz design drawings and other works in question
were created by Bryant while he was employed at Mattel. Among other things, the jury determined that MGA
and Isaac Larian intentionally interfered with the contractual duties owed by Bryant to Mattel, aided and abetted
Bryant’s breaches of his duty of loyalty to Mattel, aided and abetted Bryant’s breaches of the fiduciary duties he
owed to Mattel, and converted Mattel property for their own use.
In the second phase of the first trial, which began on July 23, 2008, the same jury determined the amount of
damages to award to Mattel for MGA’s and Isaac Larian’s conversion, intentional interference with Bryant’s
contractual duties, and aiding and abetting Bryant’s breaches of his fiduciary duties and duty of loyalty to Mattel.
In addition, the jury determined if Bratz dolls and related products infringe on the Bratz drawings and other
works owned by Mattel, what damages to assess for such infringement, and whether certain defenses asserted by
MGA have merit. The jury was instructed that if it found infringement, it was to determine the amount of
damages to be awarded to Mattel due to the infringement. On August 26, 2008, the jury rendered a unanimous
verdict for Mattel in the second phase of the trial. The jury found that defendants MGA, Larian, and MGA
Entertainment (HK) Limited infringed Mattel’s copyrights in the Bratz design drawings and other Bratz works.
The jury awarded Mattel total damages of approximately $100 million against the defendants for the copyright
infringement claim and the claims that the defendants intentionally interfered with Bryant’s contract, aided and
abetted Bryant’s breach of his fiduciary duty and duty of loyalty to Mattel, and converted Mattel’s property for
their own use.
Post-trial, Mattel moved the Court to enjoin MGA from producing infringing products in the future. Mattel
also asked the Court to award to Mattel certain rights in the term “Bratz”, which the jury found Bryant had
conceived and created while a Mattel employee. Mattel also moved the Court to enter declaratory relief
confirming, among other things, Mattel’s rights in the Bratz works found by the jury to have been created by
Bryant during his Mattel employment. MGA filed motions as well, including a motion that asserted the Court
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