Bratz Creator Loses $170 Million Mattel Judgment

(CN) - The 9th Circuit on Thursday tossed a $170 million judgment against Mattel for allegedly stealing trade secrets from Bratz doll creator MGA Entertainment.

The companies have been fighting over the large-headed, big-lipped dolls for nearly a decade, over two trials, and both have long claimed that the other misappropriated confidential trade information.

The case's first jury ruled for Mattel in 2008, finding that former employee Carter Bryant introduced the Bratz doll concept to MGA while still working for Mattel. The jury awarded Mattel $10 million, and ordered MGA and Bryant to turn over the Bratz trademark portfolio to Mattel, but the 9th Circuit ordered a retrial after finding numerous problems.

A second jury rejected Mattel's copyright claims and sided with MGA on a counterclaim for trade-secret theft. That panel jury awarded MGA $170 million on its counterclaim and $137 million in attorneys' fees and court costs.

Appealing the trade-secret verdict, Mattel argued that the issue should have never gone to trial because the statute of limitations barred MGA's claim that Mattel had sent spies to toy fairs.

U.S. District Judge David Carter, in Los Angeles, refused to dismiss the counterclaim in 2010, concluding that it was "logically related" to Mattel's claim and therefore compulsory.

A three-judge panel of the federal appeals court in Pasadena reversed Thursday, vacating the jury's awards for compensatory and exemplary damages and ordering the lower court to dismiss MGA's trade-secret claim without prejudice.

That sets up the distinct possibility for a new chapter of the case if MGA refiles.

"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," wrote Chief Judge Alex Kozinski for the unanimous panel.

The panel disagreed with the lower court's finding that MGA's counterclaim was directly related to Mattel's claim.

"MGA's claim did not rest on the same 'aggregate core of facts' as Mattel's claim," Kozinski wrote. "While Mattel asserted many claims that covered numerous interactions between Mattel and MGA, Mattel's specific allegations regarding trade secrets were that several of their employees ... defected to MGA and disclosed Mattel's trade secrets. By contrast, MGA's trade-secret claim rested on allegations that Mattel's employees stole MGA trade secrets by engaging in chicanery (such as masquerading as buyers) at toy fairs. That both Mattel and MGA claimed they stole each other's trade secrets isn't enough to render MGA's counterclaim compulsory." (Parentheses in original.)

"MGA's trade-secret claim should not have reached this jury," Kozinski added.

The panel did however affirm the award of attorneys' fees and litigation costs to MGA under the Copyright Act, finding that Mattel's arguments against them were merely an attempt to "resurrect the long-rejected requirements of frivolousness and bad faith."

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