Mattel weighing options after $309M judgment

[August 05, 2011]  SANTA ANA, Calif. (AP) -- The first salvo was fired years ago when toy giant Mattel Inc. sued MGA Entertainment Inc. over ownership of the hugely popular Bratz fashion doll line. The turbulent legal chapter has now ended with a federal judge ordering Mattel to pay its rival more than $309 million.

Mattel said it was disappointed with the decision Thursday and was evaluating its next steps. The El Segundo-based toy maker can appeal.

U.S. District Court Judge David O. Carter reduced a previous jury award from more than $88 million to $85 million but then awarded Los Angeles-based MGA an additional $85 million in punitive damages for trade secrets misappropriation. He also awarded MGA, the company's Hong Kong affiliate and its Chief Executive Officer Isaac Larian $137 million in legal fees related to copyright and trade secrets issues.

The total, which also included more than $2 million in legal fees on trade secrets claims, was more than $309.8 million, according to court papers and MGA lead counsel Jennifer Keller.

Mattel first filed a lawsuit in 2004 alleging that Bratz designer Carter Bryant was employed at Mattel when he created the Bratz dolls. The dolls with pouty lips, hip hop-style clothing and oversized feet were aimed at "tweens," or girls ages 9 to 11, and flew off the shelves when they debuted in 2001.

In 2008, a federal jury in Riverside sided with Mattel and awarded it $100 million -- but the verdict was overturned on appeal and the case sent back for retrial.

After a second trial, this time in Santa Ana, a jury in April rejected Mattel's claims and instead awarded MGA damages in a counter-claim. The smaller toy maker had alleged that Mattel used hired gumshoes to spy on its toy designs and marketing plans at trade shows and stole its trade secrets.

Mattel filed motions asking for a new trial and challenging whether the 26 trade secrets MGA alleged it stole actually qualified as trade secrets under the law.

The judge, however, denied the motion for a new trial and rejected Mattel's arguments on the trade secrets.

"Mattel's Chief Executive Officer, general counsel, two in-house counsel, three former high-ranking executives and a current employee all admitted under oath that employees misrepresented themselves to access competitors' private showrooms and gather information about unreleased products," the judge wrote. "Every one of these individuals acknowledge that the conduct was sanctioned by senior members of Mattel's corporate hierarchy and that it was improper."

Carter lowered the original $88.5 million in damages to $85 million after finding the jury made a mathematical error and awarded damages on one claim twice. But the judge then awarded an additional $85 million in punitive damages.

"We are disappointed with the recent rulings on the post-trial motions. Mattel strongly believes that the outcome at the trial level is not supported by the evidence or the law," Mattel said in a statement. "Additionally, we remain committed to finding a reasonable resolution to the litigation, and are focused on our primary goal -- to make and sell great toys."

Keller, the MGA attorney, said the ruling was a huge win for the smaller company.

"I think Judge Carter was very, very careful in everything he did to really give Mattel the benefit of the doubt," she said in a telephone interview. "His rulings were really right down the middle."

The case has been tremendously costly for both sides.

Larian has said he has spent as much as $170 million on legal fees, while analysts estimated Mattel's legal fees at $400 million shortly after the April verdict.

In the particularly heated trial, MGA attorneys accused Mattel of trying to crush Bratz because the sassy doll line was giving the venerable Barbie doll a run for her money, while Mattel accused MGA of stealing its idea for Bratz and then working to cover up any hint the concept wasn't theirs.

At one point, Mattel alleged in court papers that the trial was tainted because Larian testified that Mattel caused the stress that led to his father's death and destroyed his family, among other things.

Jurors ultimately rejected Mattel's claims of copyright infringement and instead found that Mattel stole 26 of the 114 trade secrets MGA listed, resulting in the more than $88 million in damages awarded to MGA.

[Associated Press; By GILLIAN FLACCUS]

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