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Thursday, April 21, 2011

Bratz vs. Barbie Saga Twist

Today, after seven years of litigation, and after Judge Kozinski reversed the first jury award in favor of Mattel, a new jury verdict declared clear victory for MGA. In a stunning turn of events, the new jury ordered Mattel to pay MGA $88.5 million in damages for trade secret misappropriation – almost the same amount which the previous, overturned, jury had ordered MGA to pay Mattel in the earlier stages of litigation. MGA's chief executive, Isaac Larian, wept tears of joy declaring that the eventual victory “very well shows that in America, even huge corporations are not above the law.” In my forthcoming book, Innovation’s Edge: The Upside of Talent Wars, Leaks, and Constructive Destruction, I consider these kinds of market battles over human capital and ideas.

The Barbie-Bratz legal saga began in 2004, the same year that Barbie split from Ken (which Mattel no doubt saw as a publicity stunt and others interpreted as an inevitable end given lingering rumors about Ken’s sexuality). Mattel launched its attack against Bratz claiming that one of its own employees, Carter Bryant, secretly created the competing doll. Bryant was a fashion and hair style designer for high-end Barbie dolls. But he had an idea for multi-ethnic trendier girls - Zoe, Lupe, Hallidae, and Jade, who eventually made it to market as Cloe, Yasmin, Sasha and Jade: the first generation of Bratz dolls. While still employed by Mattel, he pitched the idea of Bratz to MGA Entertainment. Bryant made initial designs out of pieces he found in the Mattel recycling bin: a Barbie body and Ken (Barbie’s ex) boots. In 2000, Bryant moved to MGA. The company introduced Bratz to the toy market a year later.

Mattel sued MGA for ownership over the Bratz copyright because Bryant, the creator of Bratz was Mattel’s own employee, who secretly made drawings of the new doll’s during his employment. In Mattel internal memos, executives described the Bratz competition as a "rival-led Barbie genocide". The memo said, "this is war and sides must be taken: Barbie stands for good. All others stand for evil." While at Mattel, Bryant had signed an invention clause under which he assigned his inventions to his then-employer. Mattel argued that it owns the drawings, and a major stake in the Bratz Empire, because Bryant had a contractual agreement to turn over any design inventions to the company while he was working there. The trial continued thereafter between the two companies, Mattel’s lawyers insisting that “there is a right way and a wrong way to compete, and what [Bratz] did here is crossing that line.” At first, California jury agreed. It found that MGA had intentionally interfered with the contractual duties that Bryant owed to Mattel as an employee and aided and abetted his breach of loyalty. Although Mattel also asserted numerous claims of unfair competition, trade secret theft, and conspiracy, the jury ultimately awarded Mattel with $100 million stemming from MGA’s intentional interference with contract and copyright infringement based on the employment contract Bryant had signed.

On appeal however, Judge Kozinski, of the Ninth Circuit Court of Appeals opened with a muse about the connection between being fierce and fiercely competing:

"Barbie was the unrivaled queen of the fashion-doll market throughout the latter half of the 20th Century. But 2001 saw the introduction of Bratz, “The Girls With a Passion for Fashion!” Unlike the relatively demure Barbie, the urban, multi-ethnic and trendy Bratz dolls have attitude. This spunk struck a chord, and Bratz became an overnight success. Mattel, which produces Barbie, didn’t relish the competition. And it was particularly unhappy when it learned that the man behind Bratz was its own former employee, Carter Bryant."

The copyright dispute over Bratz raises a central question of whether an abstract idea can be pre-assigned and exclusively owned. California’s aversion to over control comes through in the distinction between an idea and the expression of that idea colorfully described by Judge Kozinski in the Ninth Circuit’s opinion:

 “Degas can't prohibit other artists from painting ballerinas, and Charlaine Harris can't stop Stephanie Meyer from publishing Twilight just because Sookie came first. Similarly, MGA was free to look at Bryant's sketches and say, ‘Good idea! We want to create bratty dolls too.’”

             In the new trial, MGA countered Mattel’s claims for ownership over Bratz with its own claims about trade secret misappropriation. MGA accused Mattel of gaining entry to toy fairs with fake IDs to steal trade secrets. The new jury found in favor of MGA and dismissed all claims of ownership of Bratz by Mattel. Despite the final verdict in the Barbie/Bratz saga, a notable result of the litigation has been the decline of both dolls. In the end, both companies ended up paying hundreds of millions of dollars in legal fees to pursue the deadlocked trials. No one really won, and the trial saga raises once again the question of how much litigation and employment intellectual property controls are too much?

Posted by Orly Lobel on April 21, 2011 at 08:58 PM | Permalink

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Comments

Very interesting. Thanks for the post.

Posted by: Lyrissa | Apr 22, 2011 7:37:53 PM

Hundreds of millions of dollars in legal fees? The mind boggles.

Posted by: James Grimmelmann | Apr 21, 2011 9:52:42 PM

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