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Also by Timothy McCormack: 

FREE PRESS BOOKS TRADE SECRETS AND CO. SEATTLE ● INTERNET ● EARTH

The Copyright Cow Blog focuses on the untold stories of the second  largest export of the United States – intellectual property and tech‐ nology – through the lenses of law, economics (freaky‐economics)  and society.  Intellectual property is comic books, cartoon characters, the “Book  of Life” embodied in the Human Genome, medicine, technology,  movies, websites, and, for example, the business of producing and  distribu ng milk (a Copyright Cow favorite).  The Copyright Cow BLOG is not only for your local dairy farmer /  rancher in Washington state. It is also for the CEOs of Microso ,  Boeing and Ge y Images. Although Copyright Cow is a great read  for any business owner, it is also good for mothers and fathers,  teachers and students and anyone who wants to know more about  the legal and economic forces shaping 21st century America.  The law can decide, who lives and who dies; who eats and who  starves. Who gets the latest HIV medica on and who does not?  Who owns the cri cal intellectual property that, literally, holds the  key to life and death for over 50 million people?  What about the economic and social forces that help to shape the  law and also result in both prosperity and misfortune?  With the help of Copyright Cow, we will all be be er prepared to  answer these ques ons, shape a be er future and hopefully be a  li le happier! With your help, the reader, Copyright Cow can con‐ nue to help defend the American Dream! 


Seven years of litigation and millions in legal fees has helped this case to answer many important questions, including the following: 

How important are Intellectual Property rights, specifically copyright

and

trade

secret

issues, to your business? 

How important are

employee

contracts what

and

changes

should

you

make to your employee contracts? 

What does this case signify for individuals and

Copyright Cow ™ Defending the American Dream!

$88.5 Million Lawsuit Over an Employee Contract??? Bratz Dolls and What it Means to You Large corporations have larger budgets and sometimes seemingly, “unlimited funds” they can use to turn over every stone in a lawsuit through extensive discovery and other proceedings. In short, they can litigate even the tiniest of issues. But this is a story of “David v. Goliath” that ended favorably for a small California business in the case Mattel, Inc. VS MGA Entertainment. Background The Goliath in this story is Mattel, the largest toy company in the world. David is MGA Entertainment, a small privately held toy

their right to employment mobility? 

Does this case show that our legal

system

can

actually

work for the

business located in Van Nuys, California. So how did trade secrets and employee contracts become the deciding factor in a $100 Million lawsuit?

a job with MGA and he gave his two week notice to Mattel. In 2001, MGA released Bryant’s Bratz fashion line of dolls to compete with Mattel’s Barbie line. The Bratz dolls were portrayed as teenagers distinguished by large heads and skinny bodies, almondshaped eyes, and lush, glossy lips. The Bratz line reached great success, including numerous generations of doll lines, doll accessories, Bratz inspired video games, a television show and even a movie.

Let’s start from the beginning. Carter Bryant was an employee of Mattel. He designed fashion and hair styles for high end, collectible Barbies. During the term of his employment Bryant created some preliminary sketches and a crude dummy doll for his idea of the Bratz line of dolls. He met with some MGA executives to pitch the idea of Bratz dolls and there was positive reception for the doll In April 2005, MGA sued Mattel, at MGA. Bryant was then offered claiming that Mattel’s “My Scene” line of Barbie dolls infringed upon MGA’s Bratz line of dolls. The “My Scene” line had dolls portrayed with large heads and skinny bodies. Specifically, MGA sued for: False Designation of Origin, Affiliation, Association or Sponsorship; Unfair Competition; Dilution; and Unjust Enrichment. In an offensive posture, Mattel countered and sued MGA alleging copyright infringement,

small guy?

Figure 1—Bratz Dolls


specifically that Mattel owned all the rights to Bryant’s ideas of the Bratz line, including his sketches and crude doll, because Bryant was working for Mattel when he developed the idea and he signed an employment contract that released all rights to Mattel. Mattel won the first battle in District court. The judge found that Bryant’s ideas regarding the Bratz line belonged to Mattel because of the assignment clause in his employment contract. The jury found that Bryant came up with the Bratz idea while he was still at Mattel and awarded Mattel $100 million in damages, 5 percent of the $2 billion Mattel had claimed it was damaged. MGA lost on all its claims regarding Mattel’s “My Scene” line of dolls. This

“The judge found that

was a huge turn of events against MGA who actually started the lawsuit. MGA appealed the decision. The appeals court overturned the district court judge’s finding that Mattel owned the ideas and the work of their former employee who first thought of the dolls. This would be a question for a jury. The appellate court also said the judge was wrong to conclude that most of MGA’s Bratz dolls were substantially similar to Bryant’s sketches. That would also be a question for the jury. The case was remanded back to district court. MGA then motioned for and was granted a new trial.

During the protracted legal fight, two main points of disagreement arose:

Bryant’s ideas regarding the Bratz line belonged to Mattel because of the assignment clause in his employment contract”

(i) interpretation of the assignment clause in the employee contract, and (ii) whether there was copyright (against MGA if a jury found Mattel owned the copyrights under the employee contract) or trade secret infringement (as MGA originally claimed). In the end, the jurors found that Mattel had misappropriated trade secrets from MGA and awarded MGA $88.5 million, $3.4 million for each of the 26 instances in which they found misappropriation of trade secrets.

Figure 2—”My Scene” Dolls

The jury did not conclude that the “idea” of the Bratz line was owned by Mattel based on the language of the contract (an important finding). Similarly, the jury did not find that the original sketches Bryant did while at Mattel were the substantially similar to the Bratz dolls he eventually created at MGA. The jury did find that MGA was liable to Mattel for intentional interference with contractual relations and awarded Mattel a mere $10,000.

COPYRIGHT

COW™

DEFENDING

THE

Assignment Rights and the Employee Contract Carter Bryant worked as an employee for Mattel prior to taking a job with MGA Entertainment. Bryant came up with the idea of Bratz during his employment with Mattel. Mattel argued that Bryant’s employment contract assigned all of Bryant’s ideas to Mattel and that Mattel was the rightful owner of the copyrighted work associated with the Bratz idea.

AMERICAN

DREAM!


We provide strategic planning, patent and trademark portfolio management / development, domestic and international technology licensing, patent position competitive analysis, technology and collaboration agreements, technology audits, due diligence studies, cease and desist letters, and invalidity / non-infringement opinions. We represent individual inventors, artists, emerging technology companies, and mature multinational corporations in matters relating to the procurement and enforcement of domestic and foreign intellectual property rights.

We recognize that each of our clients' needs are unique. This, we adhere to an individualized approach whereby the needs of each client are addressed in accordance with their particular business objectives.

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Initially it would seem like Mattel had a slam dunk win…. Whether Mattel’s argument is valid depends on the interpretation of Bryant’s 1999 employment agreement. The employment agreement provided, “I agree to communicate to the Company as promptly and fully as practicable all inventions (as defined below) conceived or reduced to practice by me (alone or jointly by others) at any time during my employment by the Company. I hereby assign to the Company … all my right, title and interest in such inventions, and all my right, title and interest in any patents, copyrights, patent applications or copyright applications based thereon.” Initially it would seem like Mattel had a slam dunk win in the dispute. But on closer inspection of the wording, the contract only specifies that the term ‘inventions’ includes discoveries, improvements, processes, developments, designs, knowhow, and data computer programs, not ideas. Mattel argued that the agreement assigned Bryant’s ideas to Mattel, even though the word ideas was not included in the contract.

Mattel argued that the list of examples of what constitutes an invention is only illustrative not exclusive. They argued the definition includes less tangible inventions such as “know-how” and “discoveries” and Bryant may have conveyed rights that were not embodied in a tangible form.

tions created “at any time during my employment by the Company.” MGA argued that “at any time during my employment” covers only works created within the scope of Bryant’s employment, not those created on his own time and MGA Entertainment argued the definition of in- outside of his duties at Mattel. vention lists designs, processes, and computer programs which are concrete and tangible items. Mattel countered by arguing that the Bryant’s They argued that these tangible items are unlike employment agreement assigned to Mattel “any ideas, which reflect bursts of inspiration that exist doll or doll fashions [Bryant] designed during the only in the mind. MGA Entertainment also intro- period of his employment with Mattel” and that duced evidence of other contracts Mattel drafted it was irrelevant whether Bryant worked on Bratz for other employees that included the words on his own time or during his working hours at “ideas” as well as “inventions” when talking Mattel. about assignment. They argued that this tended to show that the term “inventions” alone doesn’t include ideas because other contracts included both words – inventions and ideas.

MGA also argued that even if they were wrong, the employment agreement didn’t assign the items because Bryant created them outside the scope of his employment at Mattel, i.e. on his own time during off work hours. Bryant’s 1999 employment agreement assigns to Mattel inven-

Again, this looks like a slam-dunk for Mattel. But a closer read of the employment contract shows that the terms are ambiguous. It could be that “any time during my employment” referred to the entire calendar period Bryant worked for Mattel, including nights and weekends. But it also could be read narrowly to encompass only those inventions created during work hours but includes lunch and coffee breaks.

Again, this looks like a slam-dunk for Mattel. But a closer read of the employment contract shows that the terms are ambiguous.

Article to be continued in Volume 1 Issue 8...


There is such a thing as a successful bankruptcy.

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