Friday, January 25, 2013
Panel Hands Mattel Partial Victory in ‘Bratz’ Case
By JACKIE FUCHS, Staff Writer
Toy-maker Mattel has scored a partial victory in the latest round of its ongoing battle over MGA Entertainment’s line of Bratz dolls, with the Ninth Circuit Court of Appeals yesterday vacating a jury’s award against Mattel for misappropriating MGA’s trade secrets.
A three-judge panel held that MGA’s trade secrets claim never should have reached the jury, because it did not rest on the same “aggregate core of facts” as Mattel’s trade secret claims against MGA and was, therefore, not a compulsory counterclaim.
The ruling wiped out the jury’s award of more than $80 million in damages, and an equal amount in exemplary damages which the trial court awarded for willful and malicious misappropriation pursuant to the California Uniform Trade Secrets Act, as well as attorney fees and costs related to the trade secrets claim.
If the ruling stands, it will cost MGA $172 million of the $309 million it was originally awarded, according to The Associated Press.
The appeal resulted from a second trial between the parties over Mattel’s claims that Bratz creator Carter Bryant, a former designer who worked on Mattel’s Barbie dolls, had misappropriated Mattel’s trade secrets and taken them to MGA, who had infringed Mattel’s copyrights with the Bratz line.
In the first trial, a jury sided with Mattel, but the Ninth Circuit reversed the finding and remanded the case in Mattel, Inc. v. MGA Entertainment, Inc., 616 F.3d 904 (9th Cir. 2010). The district court then vacated the jury finding and ordered a new trial.
In August 2011, the new jury found that MGA had not infringed Mattel’s copyrights, and that it was Mattel that had misappropriated MGA’s trade secrets.
In addition to the actual and exemplary damages, the trial court awarded attorney fees and costs to MGA in connection with both the trade secrets claim and its successful defense of Mattel’s copyright infringement claim.
On appeal, Mattel did not challenge the copyright infringement holding, but claimed that U.S. District Judge David O. Carter of the Central District of California should have dismissed MGA’s trade secret misappropriation claim on the basis that the statute of limitations had run.
Carter had denied Mattel’s motion on the grounds that the parties’ trade secret misappropriation claims were “logically related.”
The appellate panel reversed, saying that counterclaims-in-reply are permitted only if they are compulsory, and are compulsory only if they arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim, a determination that was not supported by the parties’ allegations.
Chief Judge Alex Kozinski, writing for the panel, said that the mere fact that both Mattel and MGA claimed they stole each other’s trade secrets wasn’t enough to render MGA’s counterclaim compulsory.
Applying the logical relationship test, the panel held that MGA’s trade secrets claim did not rest on the same “aggregate core of facts” as Mattel’s trade secrets claim, because Mattel alleged that several of its employees defected to MGA and disclosed Mattel’s trade secrets, whereas MGA’s claims rested on allegations that Mattel’s employees stole MGA trade secrets by engaging in chicanery such as masquerading as buyers at toy fairs.
“That the same information may have shuttled back and forth between Mattel and MGA isn’t a sufficient nexus to support a compulsory counterclaim,” Kozinski said.
Mattel did not prevail, however, on its claim that Carter abused his discretion by awarding attorney fees to MGA for its successful defense of Mattel’s copyright infringement claims.
The most important factor in determining whether to award fees under the Copyright Act, Kozinski said, is whether an award will further the act’s purpose of stimulating artistic creativity for the general public good, an aim which is often further by a meritorious copyright defenses.
Carter had found that “MGA [has] secured the public’s interest in a robust market for trendy fashion dolls populated by multiple toy companies.”
The panel agreed, saying that Carter was within his discretion to award MGA attorney fees because MGA’s “failure to vigorously defend against Mattel’s claims could have ushered in a new era of copyright litigation aimed not at promoting expression but at stifling the ‘competition’ upon which America thrives.”
Kozinski concluded his opinion with an admonishment to the parties:
“While this may not be the last word on the subject, perhaps Mattel and MGA can take a lesson from their target demographic: Play nice.”
Judges Stephen S. Trott and Kim McLane Wardlaw concurred in the opinion.
Kathleen Sullivan of Quinn Emanuel Urquhart & argued the case on behalf of Mattel. Clifford Sloan of Foster, Skadden, Arps, Slate, Meagher & Flom appeared on behalf of MGA.
The case is Mattel, Inc. v. MGA Entertainment, Inc., 11-56357.
Copyright 2013, Metropolitan News Company