Mattel 2012 Annual Report Download - page 101

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, Racketeer Influenced and
Corrupt Organizations (“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 Chief Executive Officer 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.
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,
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