Bratz Case to Cost Mattel $310M in Damages, Costs

SANTA ANA, Calif. (CN) - Mattel must pay $310 million in damages and attorneys' fees for sending spies to gather information on its rival's Bratz line of dolls while they were on display at private showings, a federal judge ruled.

MGA Entertainment, its affiliates in Hong Kong and Mexico, and CEO Isaac Larian will recoup $137 million in attorneys' fees and litigation costs.

The portion of the award set aside for compensatory damages, $85 million, marks a small reduction from the original $88.4 million judgment. Since a jury found Mattel's acts to be "willful and malicious," MGA is entitled under California code to another $85 million in exemplary damages. All told, the lengthy court battle that started in 2004 will cost Mattel about $310 million, plus millions more in its own attorneys' fees.

It began when Mattel claimed employee Carter Bryant designed the popular Bratz dolls before leaving the company to work for MGA. A jury awarded Mattel $100 million in 2008, but the verdict was overturned on appeal. After a retrial this summer, a new jury found Mattel had misappropriated 26 of MGA's trade secrets under the California Uniform Trade Secrets Act, awarding the 10-year-old company $3.4 million on each count.

In its latest motion for a new trial, Mattel disputed whether the 26 trade secrets qualified as such under law and said the jury lacked a "sufficient evidentiary basis upon which to reach a finding of liability for the other 26 trade secrets."

The company also argued that MGA must not have had trade secrets to hide if they were willing to hold showings.

But these arguments failed to convince U.S. District Judge David O. Carter.

The private showing came with a nondisclosure agreement, and Mattel employees knew the sensitivity of the information they could obtain as shown by the steps they took to get it, according to a trio of rulings released Thursday.

"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," Carter wrote.

Senior Mattel employees had "testified under oath" that members of the company's Market Intelligence Department used false identifications and posed as store owners to get into MGA's private showrooms, the decision states.

Mattel employees knew what they were doing was wrong because they felt it was necessary to "concoct false credentials (including fake business cards and identifying information) in order to gain access to competitors' showrooms," Carter added.

MGA had claimed that senior Mattel executives learned that false identifications were necessary to access its competitors' toy fair showrooms and enabled the misconduct.

"This rich evidentiary record provided a reasonable jury with sufficient grounds upon which to conclude that, as a general matter, MGA made reasonable efforts to maintain the secrecy of the product information available in its toy fair showrooms," Carter wrote.

MGA also argued that Mattel's actions "torpedoed" its unreleased products by releasing their own version ahead of MGA's. A former Mattel employee testified he gathered unreleased pricing, packaging and advertising information.

"MGA noted that Mattel had rushed to design and release products that 'matched' unreleased MGA products, potentially after the 'Market Intelligence' department obtained information about those unreleased products," Carter explained, adding that "at least one court has acknowledged the high attrition rate for new toys, surmising that 'in the highly competitive, billion-dollar doll industry, getting the doll's face and expression exactly right is crucial to success.'"

Carter said that, "far from lacking a legally sufficient evidentiary basis, MGA's claim that Mattel misappropriated its information was practically uncontested at trial."

MGA's damages expert, James Malackowski, testified the aggregate benefit to Mattel from the misuse of MGA's information resulted in "enhanced" profits between $149 million and $202 million.

Attorneys invested 3,620 hours litigating the trade-secret misappropriation claim alone, and another 430 hours worth in pretrial investigations procedures.

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