Mattel 2010 Annual Report Download - page 98

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Litigation
With regards to the claims against Mattel described below, Mattel intends to defend itself vigorously.
Except as more fully described in “Note 4 to the Consolidated Financial Statements—Product Recalls and
Withdrawals,” management cannot reasonably determine the scope or amount of possible liabilities that could
result from an unfavorable settlement or resolution of these claims, and no reserves for these claims have been
established as of December 31, 2010. However, it is possible that an unfavorable resolution of these claims could
have a material adverse effect on Mattel’s financial condition and results of operations, and there can be no
assurance that Mattel will be able to achieve a favorable settlement or resolution of these claims.
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. Bryant also removed
Mattel’s suit to the United States District Court for the Central District of California. In December 2004, MGA
intervened as a party-defendant in Mattel’s action against Bryant, asserting that its rights to Bratz properties are
at stake in the litigation.
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.
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 RICO claim alleged that MGA stole Bratz and then, by
recruiting and hiring key Mattel employees and directing them to bring with them Mattel confidential and
proprietary information, unfairly competed against Mattel using Mattel’s trade secrets, confidential information,
and key employees to build their business. 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.
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