A federal court jury rejected Mattel Inc.'s copyright infringement claims Thursday involving MGA Entertainment's lucrative line of hip, urban Bratz dolls and awarded MGA $88.4 million for misappropriation of its trade secrets by the Barbie-maker.
In a stunning rejection of Mattel's long-running claims against MGA, the jury found that MGA had proven that Mattel acted willfully and maliciously in misappropriating trade secrets from the smaller company.
MGA attorney Annette Hurst said the judge would have discretion to as much as triple the damages.
The jury found that Mattel does not own the idea for the popular Bratz line or any of the sketches that led to the multi-ethnic dolls with oversized heads and feet, large eyes and lips, and small bodies.
Further verdicts were expected later in the day as the complex, 28-page decision was read in U.S. District Court.
MGA Chief Executive Officer Isaac Larian openly cried while listening to the verdicts in the lawsuit pitting toy giant Mattel against upstart MGA.
Hundreds of millions of dollars in potential damages and the rights to a blockbuster toy were at stake in the case that has dragged on since 2004 and cost both sides millions of dollars in legal fees.
Larian said during a break that he hoped the verdict would send a message to Mattel that it's not alright to bully small-time entrepreneurs trying to break into the industry.
"I think justice prevailed in the end," he said. "Hopefully this will be a major lesson for Mattel."
Despite the verdict, Larian questioned whether Bratz dolls would be able to make a comeback in the aftermath of the suit.
"Mattel killed the Bratz brand. It is never going to be the same level as it was before," he said.
Hurst said the outcome made clear that Bratz belongs to MGA
"This is the biggest turnaround you could possibly imagine. It's finally owned by MGA and I hope it can reach the state of primary competitor to Barbie that it previously enjoyed," Hurst said.
The panel found that MGA did not steal any trade secrets. But the panel did not follow instructions to then move on to another section of the verdict form, and instead listed items that were Mattel trade secrets. Judge David O. Carter indicated he would address that later in the session.
Mattel won a minor point when the jury found that MGA and Larian interfered with Mattel's contractual relations with doll designer Carter Bryant and assigned $10,000 in damages, divided between the company and the CEO. But the damages were because the jury also found that Mattel should have discovered the interference and lost a window to make the claim.
The interference involved a two-week period when Bryant had given notice about leaving Mattel but was still working there while helping MGA create the doll. MGA has maintained it did not know Bryant was still working at Mattel.
In its case, El Segundo-based Mattel alleged that Bryant developed the dolls while working for Mattel in 1999 and secretly took the idea to MGA, which developed the first-generation fashion dolls while obscuring Bryant's involvement.
MGA denied the allegations and countersued, alleging the Barbie-maker engaged in corporate espionage and unfair business practices when it realized it couldn't compete against the smaller company's blockbuster toy.
MGA contended Mattel stole trade secrets, including information about future Bratz products, by sending spies with fake IDs to toy fairs so they could bolster Mattel products aimed at "tween" girls ages 9 to 11.
A jury awarded Mattel $100 million in 2008 and found that Bryant had developed the Bratz concept while with Mattel, but the verdict was overturned last year. In the appellate ruling, the court said some of the trial judge's decisions didn't take into account MGA's sweat equity in developing and expanding the Bratz line from Bryant's original ideas.
In the 2008 trial, a different judge relied on the jury's verdict to establish a trust for the Bratz trademarks and issued an injunction prohibiting MGA from producing or marketing almost every Bratz fashion doll and future dolls that were substantially similar.
The appeals court took exception to elements of those decisions, saying the outcome did not take into account the "value added by MGA's hard work and creativity" in developing the brand beyond Bryant's first sketches and the first-generation Bratz dolls, which debuted in Spain in 2001 to rave reviews.
Other than damages, a key issue in the retrial was how to interpret the language of an invention agreement that Bryant signed with Mattel in 1999.
Mattel argued during trial that the contract gave it ownership of all products invented during Bryant's employment at Mattel and also established Mattel's ownership of Bryant's ideas. Attorneys for Mattel also told jurors that the contract language covered Bryant's activities during his evenings and weekends.
Bryant has testified that he first came up with the idea for Bratz in 1998 while he was not employed by Mattel and then worked on the concept using his own equipment in his off hours once he started there.
MGA attorneys, however, said the contract doesn't refer to ideas and doesn't include work Bryant did at night or on weekends.
MGA's CEO has said his company spent at least $150 million on legal fees in the legal fight and was forced to lay off 300 employees as a result of the litigation.
In its quarterly report last week, Mattel said it has had $18.2 million in costs related to the latest litigation with MGA.
Mattel claims $314 million to $544 million in lost profits. In closing arguments, Mattel attorney Bill Price cited the testimony of a Mattel expert who estimated the company lost $323.7 million in profits because of Bratz, while MGA has reaped $734.9 million in profits from the doll.