In an article in the June 2011 issue of the Australian Intellectual Property Law Bulletin, the author summarised the first seven years of the epic Barbie vs Bratz litigation.1
Mattel Inc (Mattel), the owners of Barbie, took proceedings in April 2004 against its ex-employee Carter Bryant and MGA Entertainment Inc (MGA), a much smaller toy company that had created the Bratz line of fashion dolls.
The original suit was based on breach of copyright and of the assignment provisions in Bryant's employment contract, as he had done some preliminary sketches and a sculpt of the new dolls while he was still employed by Mattel.
Mattel won the first round, with a damages award totalling $100 million and orders for the Bratz dolls to be handed over to Mattel. However, this decision was overturned on appeal in 2010.
The matter was heard again in early 2011 before a new judge and jury. In this case, MGA was permitted to bring a counterclaim alleging theft of its trade secrets by Mattel. At that hearing, MGA's counterclaim prevailed and MGA was awarded damages and costs totalling $309 million.
By that stage, Mattel had asserted many claims against MGA some of which it had added to its original claim over the intervening years but MGA was allowed to bring its trade secrets counterclaim because among Mattel's claims were allegations that some other employees, including Gustavo Machado and Ron Brawer, disclosed Mattel's trade secrets after leaving Mattel to join MGA. The trial judge was of the view that this gave the proposed counterclaim the necessary connection with Mattel's claim. Mattel has now appealed that decision.
MGA's counterclaim which, it should be noted, was brought some six years after the launch of the original proceedings by Mattel2 alleged theft of trade secrets by Mattel employees by such underhand means as pretending to be buyers at toy fairs. Damages of $172 million (including exemplary damages) were ordered in favour of MGA on that counterclaim, along with $137 million in attorney fees and costs a total of $309 million.
By early 2011, it was estimated that MGA had spent $200 million in costs in the litigation and that it had cost Mattel twice that amount.
The United States Court of Appeals for the Ninth Circuit, in a brief decision handed down on 24 January 2013, has now decided that MGA's "counterclaim-in-reply" that gave rise to the above $172 million award should not have been allowed to be argued, as it was not "compulsory" or "arising out of the transaction or occurrence that is the subject matter of the opposing parties' claim"3 which is a required procedural element for the counterclaim-in-reply to have been permitted.
Even though they were both claims of theft of trade secrets, the appeal court found they did not arise from the same "aggregate set of operative facts",4 and even went so far as to say that it would not have been a sufficient nexus even if it had been shown that the same confidential information may have "shuttled back and forth between Mattel and MGA".5
MGA was allowed to keep its $137 million award for legal fees and costs, however, as the court found that this was a valid exercise of discretion by the district court. The appeal court held that it was not necessary for MGA to have shown that Mattel's claims were frivolous or made in bad faith to be awarded costs, and it was appropriate for the district judge to have reviewed invoices from MGA's lawyers in camera in calculating the amount of the award.
It is interesting to note that the district judge who awarded costs (Judge David O Carter) regarded Mattel's claim as "stunning in scope and unreasonable in the relief it requested", and that it was therefore in the public interest for MGA to have defended it vigorously in order to avoid "a new era of copyright litigation aimed not at promoting expression but at stifling the 'competition' upon which America thrives".6
This was given as a reason for the award of costs in favour of MGA. The appeal court quoted Judge Carter as above, but did not go that far itself, merely noting that even if Mattel's claim had been objectively reasonable, it was within the district court's discretion to award costs. The same judge who led the 2010 appeal court panel7 that overturned the original verdict of $10 million copyright damages and $90 million damages for breach of contract awarded in favour of Mattel in the original litigation and made an order for a constructive trust and an injunction against MGA Entertainment which would have effectively handed over the Bratz product to Mattel also led the panel on the latest appeal.
Chief Judge Alex Kozinski suggested in his latest judgment that the proponents take a lesson from their target demographic and "play nice".8
The fact that the very large award of costs in MGA's favour has been allowed to stand does look like it is Mattel that is still the one in the naughty corner.
The fact that MGA has been allowed to keep its $137 million award, coupled with its success when it aired its claims before the jury on the first occasion, may encourage it to seek to re-litigate its claims. However, some or all of these claims may be statute barred by now.
The lessons seem to be similar in some ways to those taught to us by the Full Federal Court in University of Western Australia v Gray,9 in that the importance of appropriate contractual provisions with employees cannot be overstated. The path for Mattel would have been clearer early on if its contracts with employees had expressly provided:
- an assignment of their ideas, as well as their inventions, to Mattel while they were in its employment; and
- that this applied to ideas and inventions whether they were created inside or outside the scope of their employment.
Mattel's decision to beef up its claim in 2006 to include theft-of-trade-secrets claims certainly does not seem to have paid off, and neither does MGA's attempt to counter with its own theft-of-trade-secrets claims.
As far as copyright protection is concerned, the lesson here is that in cases where there is lack of originality there will be a corresponding fragility in the protection offered by copyright. In the first appeal court decision in 2010, the court found that the idea of producing a plastic fashion doll based on a young female, even if the doll had exaggerated features, was a "staple of the fashion doll market".10 Therefore, it was unoriginal and only entitled to "thin" copyright protection in other words, in order to infringe, a copy would have to be identical to the original and not just substantially similar to it.
Given the huge costs expended so far on this litigation with no real success for either side, spending some time carefully wording employment contracts to ensure that they provide the broadest protection possible to employers would seem in hindsight to be a good investment.
It is unlikely that this matchup is completely over. If the players come back out swinging, we will cover it in future issues of the Intellectual Property Law Bulletin.
1 C Logan "The world's biggest catfight: Barbie v Bratz" (2011) 24(2) IPLB 42.
2 As noted earlier, Mattel first filed a suit against its former employee Carter Bryant in April 2004.
3 Mattel, Inc v MGA Entertainment Inc No 11-56357 DC No 2:04-cv-09049-DOC-RNB (9th Cir 2012) at p 5.
4 Above n 3 at p 5.
5 Above n 3 at p 6.
6 Above n 3 at p 7.
7 Chief Judge Alex Kozinski.
8 Above n 3 at p 9.
9 University of Western Australia v Gray (2009) 179 FCR 346; 259 ALR 224;  FCAFC 116; BC200908052.
10 Mattel Inc v MGA Entertainment Inc 616 F3d 904,907 (9th Cir 2010).
Disclaimer: The information contained in this e-alert/update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser.