Verdict to be read in Mattel-Bratz copyright trial

[April 21, 2011]  SANTA ANA, Calif. (AP) -- A federal jury in California will read its verdict in the copyright infringement and trade secrets lawsuit pitting toy giant Mattel Inc. against upstart rival MGA Entertainment Inc. over who owns the right to produce and sell the popular, billion-dollar Bratz doll line.

The jury reached a verdict late Wednesday but U.S. District Judge David Carter delayed reading it until Thursday to give all parties time to reach the courthouse, which is about 30 miles south of Los Angeles in Orange County. The panel has been deliberating almost two weeks after a rancorous three-month trial.

Hundreds of millions of dollars in potential damages and the rights to a blockbuster toy are at stake in the complex case that has dragged on since 2004 and cost both sides millions in legal fees.

In its case, the El Segundo-based Mattel alleges that doll designer Carter Bryant developed the dolls while working for Mattel in 1999 and secretly took the idea to MGA, which developed the first-generation fashion dolls while obscuring Bryant's involvement.

MGA denies the allegations and has countersued, alleging the Barbie-maker engaged in corporate espionage and unfair business practices when they realized they couldn't compete against the smaller company's blockbuster toy. MGA believes Mattel stole trade secrets, including information about future Bratz products, by sending spys with fake IDs to toy fairs so they could bolster Mattel products aimed at "tweens," or girls aged 9 to 11.

A jury awarded Mattel $100 million in 2008 and found that Bryant had developed the Bratz concept while with Mattel, but the verdict was overturned last year. In the appellate ruling, the court said some of the trial judge's decisions didn't take into account MGA's sweat equity in developing and expanding the Bratz line from Bryant's original ideas.

This time, jurors had been asked to decide on both Mattel and MGA's claims and could award economic damages to one side or both sides.

Jurors were also asked to consider punitive damages against both MGA and Mattel for the theft of trade secrets and decide whether Mattel has proven ownership of dozens of early Bratz-related sketches, drawings and the so-called "sculpts" that represent the first 3-D rendering of the toy.

Jurors also had to decide if Mattel has proven ownership of the idea for the name "Bratz" and the general concept of a multi-ethnic group of hip, urban dolls with oversized heads and feet, large eyes and lips, tiny noses and small bodies.

For MGA, the panel had to decide whether, in return, Mattel misappropriated MGA's trade secrets and what damages MGA is owed, if any. The smaller company claims Mattel stole 114 trade secrets from it over a seven-year period.

Whatever the jury decision Thursday, the fate of the Bratz doll line and its future ownership will still largely be decided by the judge, who will use the jury's verdict to guide him.

Depending on the verdict, the parties could also agree to a settlement that could involve some type of profit-sharing or royalty agreement for sale of the dolls.

In the 2008 trial, a different judge relied on the jury's verdict to establish a trust for the Bratz trademarks and issued an injunction prohibiting MGA from producing or marketing almost every Bratz fashion doll and future dolls that were substantially similar.

The appeals court took exception to elements of those decisions, saying that the outcome did not take into account the "value added by MGA's hard work and creativity" in developing the brand beyond Bryant's first sketches and the first-generation Bratz dolls, which debuted in Spain in 2001 to rave reviews.

Other than damages, a key issue in the retrial has been how to interpret the language of an invention agreement that Bryant signed with Mattel in 1999.

Mattel argued during trial that the contract gave it ownership of all products invented during Bryant's employment at Mattel and also established Mattel's ownership of Bryant's ideas. Attorneys for Mattel also told jurors that the contract language covered Bryant's activities during his evenings and weekends.

Bryant has testified that he first came up with the idea for Bratz in 1998 while he was not employed by Mattel and then worked on the concept using his own equipment in his off hours once he started there.

MGA attorneys, however, said the contract doesn't refer to ideas and doesn't include work Bryant did at night or on weekends.

Both toymakers have a lot on the line.

MGA's CEO Isaac Larian has said his company spent at least $150 million on legal fees and was forced to lay off 300 employees as a result of the litigation.

In its quarterly report last week, Mattel said it has had $18.2 million in costs related to the latest litigation with MGA.

Mattel claims $314 million to $544 million in lost profits and in closing arguments, Mattel attorney Bill Price cited the testimony of a Mattel expert who estimated the company lost $323.7 million in profits because of Bratz, while MGA has reaped $734.9 million in profits from the doll.

An MGA attorney, however, argued that even if jurors found that Bryant's drawings of the Bratz dolls belonged to Mattel, the most they could award was $2 million for copyright infringement and $7 million for trade secrets because MGA did the hard work to develop a "3-D doll from a 2-D drawing."

The attorney, Jennifer Keller, added that MGA had damages of $149 million to $202 million for Mattel's unfair business practices at toy fairs.

[Associated Press; By GILLIAN FLACCUS]

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