Mattel 2013 Annual Report Download - page 102

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The Court resolved summary judgment motions in late 2010. Among other rulings, the Court dismissed both
parties’ RICO claims; dismissed Mattel’s claim for breach of fiduciary duty and portions of other claims as
“preempted” by the trade secrets act; dismissed MGA’s trade dress infringement claims; dismissed MGA’s
unjust enrichment claim; dismissed MGA’s common law unfair competition claim; and dismissed portions of
Mattel’s copyright infringement claim as to “later generation” Bratz dolls.
Trial of all remaining claims began in early January 2011. During the trial, and before the case was
submitted to the jury, the Court granted MGA’s motions for judgment as to Mattel’s claims for aiding and
abetting breach of duty of loyalty and conversion. The Court also granted a defense motion for judgment on
portions of Mattel’s claim for misappropriation of trade secrets relating to thefts by former Mattel employees
located in Mexico.
The jury reached verdicts on the remaining claims in April 2011. In those verdicts, the jury ruled against
Mattel on its claims for ownership of Bratz-related works, for copyright infringement, and for misappropriation
of trade secrets. The jury ruled for MGA on its claim of trade secret misappropriation as to 26 of its claimed trade
secrets and awarded $88.5 million in damages. The jury ruled against MGA as to 88 of its claimed trade secrets.
The jury found that Mattel’s misappropriation was willful and malicious.
In early August 2011, the Court ruled on post-trial motions. The Court rejected MGA’s unfair competition
claims and also rejected Mattel’s equitable defenses to MGA’s misappropriation of trade secrets claim. The
Court reduced the jury’s damages award of $88.5 million to $85.0 million. The Court awarded MGA an
additional $85.0 million in punitive damages and approximately $140 million in attorney’s fees and costs. The
Court entered a judgment which totaled approximately $310 million in favor of MGA.
On August 11, 2011, Mattel appealed the judgment, challenging on appeal the entirety of the District
Court’s monetary award in favor of MGA, including both the award of $170 million in damages for alleged trade
secret misappropriation and approximately $140 million in attorney’s fees and costs. On January 24, 2013, the
Ninth Circuit Court of Appeals issued a ruling on Mattel’s appeal. In that ruling, the Court found that MGA’s
claim for trade secrets misappropriation was not compulsory to any Mattel claim and could not be filed as a
counterclaim-in-reply. Accordingly, the Court of Appeals vacated the portion of the judgment awarding damages
and attorney’s fees and costs to MGA for prevailing on its trade secrets misappropriation claim, totaling
approximately $172.5 million. It ruled that, on remand, the District Court must dismiss MGA’s trade secret claim
without prejudice. In its ruling, the Court of Appeals also affirmed the District Court’s award of attorney’s fees
and costs under the Copyright Act. Accordingly, Mattel recorded a litigation accrual of approximately $138
million during the fourth quarter of 2012 to cover these fees and costs.
Because multiple claimants asserted rights to the attorney’s fees portion of the judgment, on February 13,
2013, Mattel filed a motion in the district court for orders permitting Mattel to interplead the proceeds of the
judgment and releasing Mattel from liability to any claimant based on Mattel’s payment of the judgment.
On February 27, 2013, MGA filed a motion for leave to amend its prior complaint in the existing federal
court lawsuit so that it could reassert its trade-secrets claim. Mattel opposed that motion. On December 17, 2013,
the district court denied MGA’s motion for leave to amend and entered an order dismissing MGA’s trade-secrets
claim without prejudice. Also on December 17, 2013, following a settlement between MGA and certain
insurance carriers, the district court denied Mattel’s motion for leave to interplead the proceeds of the judgment.
On December 21, 2013, a stipulation regarding settlement with insurers and payment of judgment was filed
in the district court, which provided that (i) Mattel would pay approximately $138 million, including accrued
interest, in full satisfaction of the copyright fees judgment, (ii) all parties would consent to entry of an order
exonerating and discharging the appeal bond posted by Mattel, and (iii) MGA’s insurers would dismiss all
pending actions related to the proceeds of the copyright fees judgment, including an appeal by Evanston
Insurance Company in an action against Mattel that was pending in the Ninth Circuit. On December 23, 2013,
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