Trade Secrets and Dolls – The Appeal

We first reported on the Mattel-MGA Bratz doll trade secrets dispute nearly four years ago here. Mattel claimed that toy maker MGA used its trade secrets in putting together its Bratz line of dolls which became a formidable competitor to Mattel’s Barbie.

Later, Mattel got a big verdict, reported by us here, and some big-time equitable relief from the trial judge who essentially assigned the Bratz brand to Mattel on constructive trust and copyright theories.

Now the appeal. The news isn’t good for Mattel. The Ninth Circuit has reversed and remanded, probably for a new trial.

Chief Judge Kozinski, writing for the court, identified some basic problems related to the remedies in the judgment. While the case at this point has been largely drained of specific trade secrets issues, it is important in the familiar context of the appropriate remedy for an employee who develops – or steals – an idea and then takes it to a new employer.

The trial court agreed with Mattel’s argument that its former employee – Bryant – violated his employment agreement by going to MGA with the Bratz idea instead of disclosing it and assigning it to his current employer, Mattel. The damages awarded – $10 million – although not small, were much less than Mattel sought. The constructive trust and injunction by the trial court, though, were sweeping.

In reversing, Judge Kozinski found that the employment contract was not so clear that mere “ideas” were encompassed within its definition of “inventions” or that the contract’s phrase “at any time during my employment” meant just during work time or after-hours as well.

Moreover, the appeals court held, a constructive trust assigning the entire brand was simply too much given that MGA put in significant efforts in creating the brand after the initial wrongful appropriation of the idea. In the words of the court, it was “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.”

My favorite line in Judge Kozinski’s opinion (providing an example where the range of possible expression creates broad copyright protection): “there are gazillions of ways to make an aliens-attack movie.” True dat!