from the suddenly,-law-school-looks-like-a-good-idea-again dept
One of the more epic IP battles has come to an end. Mattel (Barbie) and MGA Entertainment (Bratz), have spent most of a decade in various courtrooms hashing out the ultra-serious question about which of these companies is entitled to the Bratz millions.
Long story short, a former Mattel employee left the company and crafted one of the first serious threats to Barbie's dominance, the Bratz dolls. Mattel, of course, was none too happy because the designer was still employed by Mattel when he came up with the idea. Mattel felt it owned the idea and sued the designer in an effort to make that a reality. From that point on it went from bad to worse to farcical. At one point, the court ordered MGA to turn over all future plans for the Bratz line... which was then reversed... which was reversed by a lower court... which was re-reversed by the original court. This led to counterclaims flying from both directions and the last we had heard, Mattel, which had originally filed the suit, was being hit with a judgment for $309 million in damages, including MGA's court fees. Adding that together with Mattel's legal expenses, and this fight over dolls put Mattel on the hook for nearly $700 million.
But MGA gets the last laugh. The Ninth Circuit left untouched $137 million in attorney fees and costs awarded to MGA for defending against Mattel's copyright claims.
Yes, the old truism (that I made up right now) "The only true winner in our legal system is MGA's lawyers" is proven once again in this case specifically. MGA won't be collecting any damages but at least its legal team lives on to fight another day -- possibly tomorrow, from the sound of its sore winner statement:
CEO Isaac Larian promised to retry the company's trade secret claims to a new jury. "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," he said in the statement.
Mattel has fired back with about the only silver lining retort available after spending nearly 8 years in court: the statute of limitations. The court basically agrees with Mattel's half-defiant, half-white flag statement, ruling that MGA's counterclaim (the one that had originally awarded it $170 million in damages) was time-barred and by no means "compulsory."
This hasn't stopped MGA from proudly declaring this "windfall" (which will all be going right back in its lawyers' pockets) to be the "largest fee and cost award in a copyright infringement case in US history." True, it's better than coming out of the battle stuck with the legal bill, but this misplaced joie de vivre makes it seem as though MGA will be presenting the award to Skadden, Arps, Slate, Meagher & Flom in the form of an oversized novelty check in front of gathered members of the sympathetic press and assorted minor local politicians.
As Stephan Kinsella notes, "live by IP, die by IP." You may recall the infamous legal fight over who owns the Bratz dolls. I won't go through the full history, but basically Mattel claimed that it owned the rights to Bratz dolls, because the creator of those dolls worked at Mattel (though not in a doll designing job) at the time he developed the dolls (not during work time). That guy eventually went to competitor MGA who produced the Bratz line of dolls. Mattel racked up an early series of wins in the case. Those wins seemed far overreaching. Not only did they give Mattel the rights to the original Bratz dolls, but all future plans as well, despite none of that having anything to do with Mattel.
Thankfully, sanity was regained at the appelate level, and eventually things turned around to bite Mattel for bringing the lawsuit in the first place. That's because the lawsuit allowed MGA to countersue over trade secrets violations. In April, we noted that this might end up costing Mattel $88.5 million, as the court rejected all of Mattel's claims and sided with MGA on the trade secret claim.
Turns out the result was even more damaging for Mattel. The court didn't just stick with the $88.5 million award the jury gave. Instead, while he "reduced" the jury award to $85 million, he then tacked on another $85 million in punitive damages and told Mattel to pay $137 million in legal fees to MGA. Total bill? Mattel has to fork over $309.8 million. All for a lawsuit Mattel brought in the first place. And that doesn't count the estimated $400 million that Mattel spent in legal fees during this fight. Add it all up and Mattel's decision to sue appears to have cost the company upwards of $700 million dollars.
Wow. For years, we've been following the legal battle between toy giant Mattel and toy upstart MGA concerning the ownership of Bratz dolls -- the first dolls in years to seriously compete with Mattel's classic Barbie doll. If you haven't been following it, a guy who worked for Mattel came up with the idea for the Bratz dolls. At Mattel he was not involved in designing dolls, and he claims that he did all the work in his spare time, not on company time. He then left and went to MGA, which agreed to make the Bratz dolls, which quickly became a huge success story. Mattel claimed that, under the guy's contractual agreement with Mattel, anything he invented belonged to them. The original district court ruling sided with Mattel and the judge (amazingly) ordered that Mattel should get all Bratz dolls including future plans for dolls. That made absolutely no sense to us. At best, if the determination was that the original designs were Mattel's, the company should get access to the original designs, and maybe some early dolls. But everything after that had nothing, whatsoever, to do with Mattel.
Thankfully, Judge Kozinski on the 9th Circuit came to the rescue and wrote a fantastic ruling explaining all of this to the district court, and sending the case back for a new trial. As part of that, MGA also filed some counterclaims against Mattel, including the claim that Mattel illegally spied on MGA and copied trade secrets from the company through questionable means. When these counterclaims were filed, I actually suggested that it was silly and distracting from the larger point... which I still stand by.
To summarize: in the course of a few short years, Mattel went from losing in the marketplace to MGA, to winning a court case that gave it total control over the competing product... to now not having control and having to pay MGA potentially millions.
Of course, this isn't over yet. Mattel has already asked the court for a brand new trial, and if that doesn't work, it says it's going to appeal the case, even if some "industry analysts" are apparently telling Mattel the company should just drop it. I have a feeling we haven't yet seen the end of this case, however.
We were somewhat horrified by a ruling a little over two years ago that said that because a guy employed by Mattel had created the idea for the "Bratz" doll line while employed at Mattel (but not in a doll-creating capacity), it meant that Mattel could own all of Bratz. The guy eventually took his idea to competitor MGA Entertainment, who developed and built up the Bratz line, which became the first serious challenger to Barbie's dominance in the doll world. What really troubled us was the fact that the court ruled not just that Mattel owned the rights to the original Bratz doll idea, but that it owned everything having to do with Bratz, even plans for future dolls. While the guy worked at Mattel, all he created was a prototype, not everything that came after that. Thankfully, Judge Kozinski slapped down the lower court in much of this thinking, explaining (once again) that copyright only covers the expression, not the idea.
Judge Kozinski sent the case back to the district court, noting that it probably would mean that the entire case would need to be retried. In the first step concerning that new trial, the district court judge has ruled that Mattel cannot seek damages on later versions of the dolls, limiting that part of the case to just two original dolls. The judge noted:
"Not only do the vast majority of the subsequent generations of Bratz dolls differ in their hairstyles and fashions … but they lack any meaningful similarities outside of ideas."
Of course, the district court could have saved a lot of time and effort if it had just made this basic point the first time around. There will still be a trial about the initial doll designs, as well as a trade secrets claim, but, unlike the original trial, it seems that Mattel won't end up with all of the Bratz line.
That said, the original ruling apparently did tons of damage already to MGA and Bratz. As the article notes, MGA seriously cut back on Bratz after the original ruling (why build toys that a competitor gets to own?) and many retailers stopped carrying the line as it wasn't clear what was going to happen. So even if Mattel loses the eventual lawsuit, it seems that it may have won in the long run by seriously curtailing a strong competitor that had tremendous momentum. Just like copyright law intended...
We've been following a lawsuit over Bratz dolls for a few years now. It involved a guy who worked at Mattel (not in a position designing dolls). While there, he had an idea for a new line of dolls, and eventually negotiated a deal to create those dolls for competitor MGA. The new dolls became The Bratz, one of the few super successful doll lines to challenge the success of Barbie dolls. Somewhere along the line, Mattel realized that the guy had worked at Mattel, and claimed that his employment agreement meant Mattel owned pretty much all rights to Bratz dolls, and that MGA owed Mattel a billion dollars. A court sided with Mattel and didn't just say that MGA and Bratz infringed, but effectively handed over all rights to Bratz dolls -- including future plans. This made absolutely no sense to us. At the very least, if the court found that Mattel owned the rights to the original design, at most Mattel should have only been able to get damages for those original designs. Giving them rights to later designs makes no sense at all. MGA appealed noting that giving Mattel all of its plans, as demanded, would result in "devastating and irreversible consequences." After sounding skeptical late last year, Judge Kozinski in the 9th circuit has now soundly rejected most of the lower court ruling (pdf).
The ruling itself is a really good read, especially if you're interested in the difference between ideas and expression, and making sure that copyright only covers the copyrightable part of an expression. A common misconception is that copyright covers an entire work. In some cases, that's not true. Only parts of a work may get copyright protection:
Among the notable parts, the judge is troubled by the lower courts ruling that Bryant's design work that was done after hours automatically is given to Mattel. As he notes, the employment agreement says inventions that are developed while employed belong to Mattel -- and the definition of inventions does not include "ideas." And, since IP system defenders are always quick to point out that inventions and ideas are not the same thing, the judge notes that it's not at all clear that the employment agreement covers the idea of the Bratz dolls. At the very least, the court says the lower court shouldn't have ruled on summary judgment that the idea of Bratz dolls automatically belonged to Mattel. The court also noted that the terms of the employment agreement were ambiguous, such that it wasn't at all clear or obvious if things done on personal time were covered by the agreement.
But more interesting is the discussion of how much of the IP would belong to Mattel even if it's determined that MGA infringed. Kozinski clearly has problems with the decision to assign all current and future plans to Mattel, pointing out that this seems to be based on a misreading of the case law. He notes that the law does allow appreciation in value to go to the rightful owner, but mainly if that appreciation in value is due to external factors. He finds it quite troubling that Mattel should be given all of the value created through MGA's hard work:
Even assuming that MGA
took some ideas wrongfully, it added tremendous value by
turning the ideas into products and, eventually, a popular and
highly profitable brand. The value added by MGA's hard
work and creativity dwarfs the value of the original ideas Bryant
brought with him, even recognizing the significance of
It is not equitable to transfer this billion dollar brand--
the value of which is overwhelmingly the result of MGA's
legitimate efforts--because it may have started with two misappropriated
names. The district court's imposition of a constructive
trust forcing MGA to hand over its sweat equity was
an abuse of discretion and must be vacated.
The next part highlights that just because there were similarities between the original ideas and the Bratz dolls, it doesn't mean Mattel should get all ownership. If it is determined that Mattel holds the copyright (again, still somewhat in dispute), it should only be limited to the parts of the dolls that are covered by the copyright. Here's where the narrow protections of copyright law come into play:
In order to determine the scope of protection for the
sculpt, we must first filter out any unprotectable elements.
Producing small plastic dolls that resemble young females is
a staple of the fashion doll market. To this basic concept, the
Bratz dolls add exaggerated features, such as an oversized
head and feet. But many fashion dolls have exaggerated
features--take the oversized heads of the Blythe dolls and My
Scene Barbies as examples. Moreover, women have often
been depicted with exaggerated proportions similar to those of
the Bratz dolls--from Betty Boop to characters in Japanese
anime and Steve Madden ads. The concept of depicting a
young, fashion-forward female with exaggerated features,
including an oversized head and feet, is therefore unoriginal
as well as an unprotectable idea....
It's true that there's a broad range of
expression for bodies with exaggerated features: One could
make a fashion doll with a large nose instead of a small one,
or a potbelly instead of a narrow waist. But there's not a big
market for fashion dolls that look like Patty and Selma Bouvier.
Little girls buy fashion dolls with idealized proportions
--which means slightly larger heads, eyes and lips; slightly
smaller noses and waists; and slightly longer limbs than those
that appear routinely in nature. But these features can be
exaggerated only so much: Make the head too large or the
waist too small and the doll becomes freakish, not idealized.
only unprotectable elements the district court identified were:
(1) the dolls' resemblance to humans; (2) the presence of hair,
head, two eyes and other human features; (3) human clothes,
shoes and accessories; (4) age, race, ethnicity and "urban" or
"rural" appearances; (5) standard features relative to others
(like a thin body); and (6) other standard treatments of the
subject matter. And it reasoned that the doll's
"[p]articularized, synergistic compilation and expression of
the human form and anatomy that expresses a unique style
and conveys a distinct look or attitude" is protectable, along
with the doll fashions that expressed an "aggressive, contemporary,
youthful style." But Mattel can't claim a monopoly
over fashion dolls with a bratty look or attitude, or dolls sporting
trendy clothing--these are all unprotectable ideas....
This error was significant. Although substantial similarity
was the appropriate standard, a finding of substantial
similarity between two works can't be based on similarities in
unprotectable elements. When works of art
share an idea, they'll often be "similar" in the layman's sense
of the term. For example, the stuffed, cuddly dinosaurs... were
similar in that they were all stuffed, cuddly dinosaurs--but
that's not the sort of similarity we look for in copyright law....
MGA's Bratz dolls can't be considered substantially
similar to Bryant's preliminary sketches simply because the
dolls and sketches depict young, stylish girls with big heads
and an attitude. Yet this appears to be how the district court
When we wrote about this case earlier, it kicked off quite a discussion. Many people insisted that because Bryant designed the dolls while employed by Mattel, Mattel easily deserved all of the benefits accrued by MGA. It's great to see Kozinski point out that this is not true, and recognize that there's a big difference between ideas, expression and execution, as well as highlighting the difference between copyright covering an entire product and just the protectable parts of a product. While one would hope all judges would understand this, clearly, many do not.
We were pretty shocked when a judge ordered doll maker MGA to hand over pretty much everything having to do with Bratz dolls to Mattel, the maker of Barbie -- one of the key products Bratz competes against. While some of the facts are disputed by various parties, it does seem pretty clear that a Mattel designer was working on the concept of Bratz and then went to MGA to make the dolls instead. Mattel claims that it owns the entire concept because its contract with the designer included all rights to things he worked on while under their employ. Even if you accept all that, it seemed to go too far to not just provide monetary payments and/or an injunction, but to tell MGA to hand over the entire line of dolls including future plans for the dolls. That seems to go well beyond the scope of what's reasonable -- and it seems like the appeals court might agree. It has lifted the original deadline for when MGA had to transfer stuff over to Mattel and seems to be considering whether itself goes too far, saying that handing all of that over to Mattel seemed "draconian."
Even if we grant that the designer created the dolls while he worked at Mattel, it takes more than just an idea to be successful. Yet this ruling seems to put the entire value of not just the Bratz line of dolls, but every forward thinking innovation in the Bratz line, into that single idea. That's going way too far. Sure, perhaps there should be some sort of sanctions or punishment, but MGA did a lot more than just see this idea, snap its fingers and have a success on its hands. The execution was what made it work, and it seems silly to ignore all of that and assume that the entire value is in the idea -- and everything else needs to be handed over because the guy had the idea while still at Mattel.
Last year, we wrote about a somewhat horrific court ruling against MGA Entertainment, the makers of Bratz dolls, after getting sued by Mattel. If you don't follow the doll business, Bratz is really the first doll to successfully compete against the massively successful Barbie franchise in ages. However, the guy who came up with Bratz had worked at Mattel prior to going off on his own. Of course, this is the history of many different innovative companies. If you come up with a better idea while working at one company, it's a good thing that you can go off and build your own company. As we pointed out at the time, this is the story of plenty of successful tech companies. Steve Wozniak was at HP when he built the first Apple computer (and continued to work there for some time after Apple was moving forward). Robert Noyce helped found Fairchild (and later Intel) after growing frustrated at Shockley Transistor. Hell, William Shockley founded Shockley Transistor after feeling he didn't get enough respect at Bell Labs. Yet, here's a toy designer at Mattel who's entire operation is getting shut down because he came up with the idea while still employed at Mattel?
Even if you grant the somewhat troubling premise that the concept for the dolls was created at Mattel, at best you could make an argument that Mattel had some rights to an injunction and profits from the first generation of those dolls. Yet, the judge not only ruled that, but also that MGA had to give up all such dolls, and hand over all sorts of confidential info, including "all related products, designs, customer information and 'know-how' for a planned 2010 Bratz line." It's difficult to see any justification at all for forcing them to hand over future plans that had nothing to do with what the guy created while still at Mattel. MGA has now filed an emergency appeal, noting that if it does hand over such info and assets, it would have "devastating and irreversible consequences," which seems quite accurate. All in all, this seems like Mattel simply trying to stop competition, and it's a shame that the US court system seems to be helping.
A bunch of folks have sent in the story that the ultra-popular "Bratz" dolls have been banned by a judge following a long court case. The case revolved around a former employee of Mattel (makers of Barbie), who apparently developed the concept of the Bratz dolls while working there. However, he ended up going out on his own to produce them -- which is the history of an awful lot of American success stories over the years. Steve Wozniak developed the Apple computer while he was working at HP, but the company wasn't interested in making the machines. Robert Noyce (founder of both Fairchild Semiconductor and Intel) felt underappreciated at Shockley Transistor. There are plenty of stories of folks working at one company realizing that they could do a better job on their own -- and that leads to competition and innovation. There was also some evidence in the case suggesting the guy had actually developed the basic idea of Bratz well before he was even employed by Mattel, though it does sound like he continued to work on the idea on the side while employed there -- though only in designing the idea, not actually making the dolls. It was only after he had left Mattel that he actually moved forward with implementing the idea. To stop him from ever going to market with a doll concept he was thinking about for years just because he worked at Mattel seems ridiculous and very anti-competitive.
However, even if you grant that Mattel has some sort "ownership" over the ideas in this guy's head while he worked at Mattel, it should only apply to the first generation of Bratz dolls. However, the court has gone even further, barring everything having to do with the Bratz dolls. Mattel, of course, is thrilled. Bratz had been the first really successful competitor to the Barbie franchise, and getting a court to shut it down completely is a huge win for Mattel. There will be an appeal, of course. The judge at least allowed the products to stay on the shelves through the holiday season, and it's quite likely that the appeals court will put a stay on the injunction until it hears the case. Even if it's eventually decided at higher courts that Bratz somehow infringe on Barbie intellectual property, it seems like a fine, rather than a complete injunction is a much more reasonable punishment.