A federal appeals court panel Thursday tossed a Santa Ana jury's multimillion-dollar award to toy company MGA Entertainment in its trade-secrets dispute against Mattel over rights to the Bratz line of dolls.
After a three-month trial and eight days of deliberations, jurors in April 2011 found that MGA, with Chatsworth offices in the former Los Angeles Times building at 20000 Prairie St., did not steal any secrets from El Segundo-based Mattel and that Mattel did not own the idea for the Bratz dolls.
Jurors awarded MGA $85 million in damages, which U.S. District Judge David O. Carter doubled to $170 million.
Carter also awarded about $140 million in attorneys' fees and damages. The U.S. 9th Circuit Court of Appeals upheld that ruling despite vacating the jury's verdict.
The dispute stems from Bratz doll designer Carter Bryant's defection from Mattel to MGA. Bryant worked for MGA after giving Mattel two weeks notice of his intent to quit, triggering claims from Mattel that MGA stole its trademark secrets.
Bryant said he got the idea for the sassy, more urban line of dolls with oversized heads and feet while driving past a high school on his way home from his job at Old Navy in western Missouri. He moved there to live with his parents between two stints at Mattel.
Jurors in April 2011 found against Mattel because of evidence indicating the toy giant engaged in corporate espionage. MGA also claimed that Mattel bullied retailers to not carry the Bratz dolls.
The 2011 verdict was a reversal from August 2008, when a federal jury in Riverside ruled for Mattel in its civil suit alleging MGA committed copyright infringement and conspired to breach Bryant's contract with Mattel. The evidence of the corporate espionage surfaced just days before the 2011 trial, MGA's attorneys said.
The $100 million award to Mattel in 2008 was overturned by the U.S. 9th Circuit Court of Appeals in 2010, leading to the retrial in Santa Ana.
In Thursday's opinion, penned by Chief Judge Alex Kozinski, the 2011 verdict was overturned because MGA's counterclaim was improperly ruled by a federal judge to be "compulsory" to Mattel's original complaint. MGA's claims of trade secret misappropriation were different than Mattel's original complaint and were not connected, so MGA was not entitled to be allowed a compulsory counterclaim, the justices ruled.
"Because MGA's trade-secret claim should not have reached this jury, we vacate the verdict along with the related damages, fees and costs," Kozinski wrote.
In other words, the jury in 2011 should not have been considering the claims of both companies at the same time.
The federal appellate justices upheld the attorneys' fees, because Carter's award furthers the intent of the Copyright Act, which is to encourage artistic creativity for the public's good. The justices cited former Creedence Clearwater Rival frontman John Fogerty's legal battle against the company that acquired publishing rights to his song, "Run Through the Jungle."
Quoting from Carter's ruling, Kozinski wrote, "MGA's 'contribution to the state of the law in the field of copyright in a case of this magnitude and notoriety' was important 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."'
Thursday's ruling will likely trigger another trial.
MGA Chief Executive Officer Isaac Larian vowed another lawsuit.
"We remain thankful for all of the hard work done by the first jury and Judge Carter and we are confident that when the second jury hears about Mattel's sneaking into our showrooms and egregious theft of scores of our secrets over the years, they will be even more appalled than the first jury and award MGA even greater damages," Larian said.
"We are gratified that the Ninth Circuit affirmed the largest fee and cost award in a copyright infringement case in U.S. history and continued to hold Mattel liable for pursuing its frivolous claims against us," Larian added.
Mattel officials predicted a new lawsuit would fail.
"While MGA can in theory bring a new lawsuit based on its toy fair claims, we are confident that such a lawsuit will be barred by the statute of limitations," said Mattel spokesman Alan Hilowitz. "We look forward to the speedy and final resolution of this dispute, and will continue to focus our efforts on successfully competing in the marketplace."
Kozinski offered a bit of advice for both sides in the rematch.
"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," Kozinski concluded in the opinion.