Federal appeals court rules MGA can keep selling Bratz dolls, reversing lower court decision

Appeals court: MGA can keep selling Bratz dolls

NEW YORK — Bratz dolls will remain in legal limbo for a while longer after a court on Thursday overturned a ruling shifting ownership of the pouty-lipped posers from MGA Entertainment to Mattel in a copyright case that has lasted for years.

The 9th U.S. Circuit Court of Appeals in San Francisco ruled that a district court was wrong to give ownership of the full Bratz trademark portfolio to Mattel Inc. in a 2008 decision that has been on hold since December. Judge Alex Kozinski said the entire case might have to be retried in district court.

“America thrives on competition; Barbie, the all-American girl, will too,” he wrote in Thursday’s ruling.

The legal wrangling began in 2006, when Mattel alleged Bratz designer Carter Bryant developed the concept for Bratz while still working for Mattel, the largest U.S. toy maker. Mattel sued MGA for copyright infringement and breach of contract.

In 2008, a federal jury awarded Mattel $100 million and the court ordered MGA to recall Bratz toys that were on the market and turn over the brand to Mattel.

In April 2009, U.S. District Court Judge Stephen Larson upheld the $100 million jury verdict, but the appellate court stayed the order in December until it could rule on MGA’s appeal.

Kozinski said the district court was wrong to characterize Bryant’s employment agreement as unambiguously covering works created outside the scope of his employment at Mattel. And he said it was wrong to transfer the entire Bratz trademark portfolio to Mattel because MGA’s development efforts significantly increased its value.

He also said some elements of Bryant’s sketches that developed into Bratz dolls are not protected under copyright law and should not have been included in the portfolio the court ordered transferred to Mattel.

“Because several of the errors we have identified appeared in the jury instructions, it’s likely that a significant portion — if not all — of the jury verdict and damage award should be vacated, and the entire case will probably need to be retried,” Kozinski said.

In a statement, MGA called the ruling a “sweeping victory.”

MGA began selling Bratz dolls in 2001 after hiring Bryant, who was working in Mattel’s “Barbie Collectibles” department when he pitched the idea for a new line of dolls to MGA CEO Isaac Larian. The dolls, which MGA called “The Girls With a Passion for Fashion,” quickly gained popularity with young girls and competed directly with Barbie, which had ruled the fashion-doll market for decades. But their popularity peaked in 2005, and sales have slid since. Meanwhile, sales of Barbie, who turned 50 last year, have had a resurgence. They rose 6 percent in the company’s most recent quarter.

Needham & Co. analyst Sean McGowan said that after so many years, the tussle over Bratz seems almost irrelevant.

“At this point, what more is there to be achieved by fighting?” he said.

He said Bratz have nearly disappeared from store shelves and kids have moved on to other toys.

As long as the legal fight stretches out, “retailers aren’t going to touch this,” he said.

MGA last year introduced a more sedate line of fashion dolls, “Moxie Girlz,” which are more flexible than Bratz.

Separately, in a second phase of the dispute that is still under way in district court, Mattel claims MGA stole trade secrets. Mattel said during its call with analysts after it reported its earnings July 16 that a trial date hadn’t been set for that phase yet. It said it has spent about $14 million on legal costs in the first half of this year, mainly in preparation for the trial’s second phase.

Mattel said in a statement it looked forward to “a full trial on all of Mattel’s claims against MGA.”

“We believe that such a trial will present a comprehensive and even more compelling case for Mattel than was possible with a divided trial,” Mattel spokeswoman Lisa Marie Bongiovanni sent in a response to an e-mail query.

Mattel shares rose 39 cents, or 1.9 percent, to close Thursday at $21.05 during midday trading. The stock has traded between $17.08 and $24.60 during the past year.

Associated Press Writer Terry Chea in San Francisco contributed to this report.