Mattel 2010 Annual Report Download - page 99

Mattel sought to try all of its claims in a single trial, but 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. On May 19, 2008, Bryant reached a
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. The jury found that almost all of the Bratz design drawings and other works in
question were created by Bryant while he was employed at Mattel; 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. The same jury determined that defendants MGA, Larian, and MGA
Entertainment (HK) Limited infringed Mattel’s copyrights in the Bratz design drawings and other Bratz works,
and awarded Mattel total damages of approximately $100 million against the defendants. On December 3, 2008,
the Court issued a series of orders rejecting MGA’s equitable defenses and granting Mattel’s motions for
equitable relief, including an order enjoining the MGA party defendants from manufacturing, marketing, or
selling certain Bratz fashion dolls or from using the “Bratz” name. The Court stayed the effect of the
December 3, 2008 injunctive orders until further order of the Court and entered a further specified stay of the
injunctive orders on January 7, 2009.
The parties filed and argued additional motions for post-trial relief, including a request by MGA to enter
judgment as a matter of law on Mattel’s claims in MGA’s favor and to reduce the jury’s damages award to
Mattel. Mattel additionally moved for the appointment of a receiver. On April 27, 2009, the Court entered an
order confirming that Bratz works found by the jury to have been created by Bryant during his Mattel
employment were Mattel’s property and that hundreds of Bratz female fashion dolls infringe Mattel’s copyrights.
The Court also upheld the jury’s award of damages in the amount of $100 million and ordered an accounting of
post-trial Bratz sales. The Court further vacated the stay of the December 3, 2008 orders, except to the extent
specified by the Court’s January 7, 2009 modification.
MGA appealed the Court’s equitable orders to the Court of Appeals for the Ninth Circuit. On
December 9, 2009, the Ninth Circuit heard oral argument on MGA’s appeal and issued an order staying the
District Court’s equitable orders pending a further order to be issued by the Ninth Circuit. The Ninth Circuit
opinion vacating the relief ordered by the District Court was issued on July 22, 2010. The Ninth Circuit stated
that, because of several jury instruction errors it identified, a significant portion—if not all—of the jury verdict
and damage award should be vacated.
In its opinion, the Ninth Circuit found that the District Court erred in concluding that Mattel’s Invention
agreement unambiguously applied to “ideas;” that it should have considered extrinsic evidence in determining
the application of the agreement; and if the conclusion turns on conflicting evidence, it should have been up to
the jury to decide. The Ninth Circuit also concluded that the District Judge erred in transferring the entire brand
to Mattel based on misappropriated names and that the Court should have submitted to the jury, rather than
deciding itself, whether Bryant’s agreement assigned works created outside the scope of his employment and
whether Bryant’s creation of the Bratz designs and sculpt was outside of his employment. The Court then went
on to address copyright issues which would be raised after a retrial, since Mattel “might well convince a properly
instructed jury” that it owns Bryant’s designs and sculpt. The Ninth Circuit stated that the sculpt itself was
entitled only to “thin” copyright protection against virtually identical works, while the Bratz sketches were
entitled to “broad” protection against substantially similar works; in applying the broad protection, however, the
Ninth Circuit found that the lower court had erred in failing to filter out all of the unprotectable elements of
Bryant’s sketches. This mistake, the Court said, caused the lower court to conclude that all Bratz dolls were
substantially similar to Bryant’s original sketches.
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