News

Mattel could use time defense in epic Bratz litigation

By Matthew Blake

LOS ANGELES – Lawyers have nearly run out of superlatives to describe the ever-unfolding litigation between rival toymakers Mattel Inc. and MGA Entertainment Inc. that has persevered amid mammoth shifts in the fashion doll economy and cost hundreds of millions of dollars in attorney fees. But it looks like the two are on a path to war again over MGA’s Bratz dolls.

Los Angeles County Superior Court Judge Amy D. Hogue’s tentative ruling this month rejecting Mattel’s motion to dismiss a $1 billion trade secret lawsuit filed by MGA means there will probably be a third jury trial. MGA’s current lawsuit resuscitates claims that for 17 years Mattel employees used phony identities to steal MGA information at trade shows and used that doll intelligence to expedite the demise of Bratz, the erstwhile sassy MGA dolls with pouty mouths an almond-shaped eyes that took business away from Mattel’s venerable Barbie dolls.

Mary C.G. Kaufman, an associate at Early Sullivan Wright Gizer & McRae LLP, said that Van Nuys-based MGA and El Segundo-based Mattel are “trailblazing” in pressing on with courtroom fights, noting, “The litigation has surpassed the market for Bratz dolls.”

Kaufman and other lawyers interviewed said round three could hinge on whether MGA’s time window to make trade theft claims has expired.

The legal battle began in Mattel Inc. v. Bryant et al., CV04-3431 (C.D. Cal., filed May 14, 2004), when Mattel alleged their employees gave MGA the idea for Bratz.

A federal jury agreed, but on appeal, the 9th U.S. Circuit Court of Appeals in 2010 reversed the decision, sending the case back to the Central District. MGA lawyer Jennifer L. Keller of Keller Rackauckas LLP then unveiled a bombshell counterclaim: Mattel spied on MGA between 1992 and 2009.

A new jury sided with MGA and the company won $172 million in damages and $137 million in attorney fees. Then, in 2012 the Circuit took away MGA’s damages while keeping their collection of attorney costs, finding MGA lacked procedural grounds to file the counterclaim, and, again, sent the case back to the Central District.

After Judge David O. Carter dismissed MGA’s claims with prejudice in December 2013 and termed the dispute “a decadelong litigation odyssey,” MGA filed suit against Mattel in state court, MGA Entertainment v. Mattel Inc., BC532708 (L.A. Super. Ct., filed Jan. 13, 2014).

The current lawsuit attempts to catalogue the prior lawsuits, noting, for example, that past litigation has taken up 10,000 separate docket entries and 11.5 million pages of discovery.

With memories of discoveries past, Keller said Hogue should speedily proceed to a jury trial sometime in 2015.

Keller noted that the prior trade secret lawsuit was “overturned on a technicality” and that with a less conservative Los Angeles jury pool, MGA could get even more than the original $172 million damages initially rewarded.

Roger N. Behle Jr., a partner at Foley Bezek Behle & Curtis LLP, agreed MGA could win big in a jury trial based on the trade secret allegations’ merits.

But Behle also said that, unlike in the prior federal trial, Mattel attorney John B. Quinn of Quinn Emanuel Urquhart & Sullivan LLP will likely focus on a “time-based defense” that the clock has expired on trade theft claims – and try to find evidence that MGA suspected espionage long before its 2010 allegations.

Quinn, who could not be reached for comment, has already sought to dismiss the case by arguing MGA is using similar facts to claims in prior lawsuits that were dismissed. In a Nov. 13 ruling still under seal, Hogue rejected for now those arguments.

Under California’s Uniform Trade Secret Act, MGA had three years upon learning of Mattel spying to file a claim. According to Kaufman, an entertainment and business litigator, Mattel could either argue that the clock kept running since 2010, when the company was first sued for the trade theft, or – more likely – allege that MGA suspected espionage long before 2010.

Kaufman said the new trial would have a significant discovery phase of what MGA knew when. “This is the place where they are going to take additional discovery,” Kaufman said.

Jedediah Wakefield, a partner at Fenwick & West LLP, said he is not sure if Mattel has strong statute of limitations or other time defense claims, but did note that a case alleging years of continuing trade theft is highly unusual.

“I’m not aware of another case where an ongoing pattern has been alleged,” said Wakefield, who focuses on trademark litigation. “Usually the plaintiff figures out what has been going on and brings an action earlier.”

Keller stressed that for years Mattel effectively concealed its espionage to the point MGA executives thought they had a mole.

In fact, one of the plaintiff’s arguments is that Mattel not only spied on MGA, but was really good at it. Keller said that the espionage combined with a briefly upheld 2008 injunction on sale of the Bratz dolls, effectively drove Bratz off the shelves. Ten years ago, Bratz had almost 50 percent market share of the fashion doll industry.

Because of Bratz’s downfall, Wakefield said, “MGA sees potentially significant upside” in filing another suit and hoping for a big day and bad publicity for Mattel.

Wakefield is not holding his breath that the matter will wrap up in state court.

“I expect to see an appeal by somebody.”

matthew_blake@dailyjournal.com