MATTEL WINS FIRST PHASE OF TRIAL, BUT SO WHAT?
[Great photo from the Telegraph.co.uk's January 2007 article Spoilt Bratz.]
The federal jury in the Dueling Dollies copyright war has returned a major victory today for Mattel -- a unanimous verdict -- finding that Bratz designer Carter Bryant (who wisely settled out early) came up with his initial drawings and prototypes for the Bratz doll while he was an employee of Mattel. Reuters' Gina Keating has a nice early summary here.
What does this mean? It means that a number of the early Bratz drawings, along with some prototypes, belong to Mattel, not MGA.
But the jury didn't stop here. It also made findings against MGA's CEO, Isaac Larian, finding that he (a) intentionally interfered with the designer's contracts with Mattel; (b) aided and abetted the designer's breach of his statutory duty of loyalty to Mattel; (c) aided and abetted the designer's breach of his fiduciary duties to Mattel; AND (d) converted Mattel's property for his own use. OUCH!
But this is not the end. The trial will continue on the question of whether the actual Bratz dolls infringe on the early drawings and prototypes that Mattel now owns, and whether certain defenses MGA reserved have merit. And then, if Mattel prevails again, comes the question of damages. Mattel's attorney says he is looking at damages based on the profit MGA enjoyed from sale of the Bratz dolls and related merchandise, which some have pegged at half a billion dollars a year! But there are many legal hurdles Mattel must clear before they get numbers anywhere near there.
One big issue involves the Bratz name and goodwill. Mattel is suing over the design of the doll, but the Bratz brand, the trademark, belongs to MGA. So even if Mattel's victory today sticks, it will own some early doll designs; but it will not own the goodwill that has been developed over the years under the Bratz moniker. It might be entitled to past damages that might reflect some of that goodwill, but it won't own the Bratz name and goodwill in the future. Mattel might be able to use the designs to create a new Bratz-like doll, but Mattel will have to call it something other than Bratz. Good luck. Its earlier effort at an urban chic doll line was no Barbie (remember Flavas? I didn't think so.).
And Mattel might be limited in its damages recovery if the Bratz dolls bringing in the big bucks are materially different than the initial drawings and prototypes now owned by Mattel. These will all be fun issues for us spectators to watch play out as the trial continues.
But what about the ADR angle? Have the parties invested so much into the lawsuit already that settlement is out of the question? Has today's jury verdict so skewed the playing field as to make mediation a foregone failure? Will the parties have to duke it out all the way to the appellate courts before peace returns to the doll world?
We at the IPADR Blog never give up.
Look at some of the possible outcomes (and this assumes years more of litigation and appeal, with attendant legal fees and costs).
Scenario 1: MGA wins on its remaining defenses, wins on appeal, and the case is over. Mattel loses big time. It loses millions of dollars in attorneys fees and costs (how many millions to prosecute this case for two years, try it for months in Riverside, take over half of the Riverside Marriott as a war room (war hotel?), etc.? My guess is well north of $25m.). It has no right to the Bratz dolls, and hence Barbie continues to lose market share to the urban upstart. It is left hoping MGA doesn't have a toy car line in the works.
Scenario 2: Mattel keeps its victory, becoming the proud owner of some of the early Bratz drawings and prototypes. But because the Bratz doll has been changed considerably from those early drawings (and the jury doesn't buy Mattel's presumptive argument that the latter dolls are simply derivatives of the earlier ones), Mattel's damages are relatively minor (relative in the Doll War sense, still substantial to regular people like you and me). Hopefully they cover Mattel's attorneys fees. And Mattel would have no rights to the future Bratz sales or the Bratz name. MGA stays in existence, pays the painful penalty, but otherwise looks to the future as the reigning Queen of the Dolls. Mattel can make a new line of dolls based on the old drawings and prototypes, but good luck with that. (Again, remember Flavas? I didn't think so.)
Scenario 3: Mattel owns the drawings, gets a ruling that the current Bratz dolls are based on (derived from) those early drawings and hence infringe, and is awarded a really really REALLY BIG damages verdict. One that covers all profits made by MGA (the "billion" figure?), as well as compensates Mattel for the lost market share of the Barbie franchise caused by the reign of the unlawful Bratz. This would likely cripple MGA, if not force it to simply hand the keys of the company over to Mattel. But again, this would not necessarily give Mattel the Bratz name (unless Mattel bought it out of BK, but let's not go too far with the hypos). Barbie might again reign supreme; but there might also be some very unhappy little girls unable to play with the new dolls of their choice.
Is there something here a good mediator could work with?
Of course there is.
Among many other things (which my co-bloggers may point out), it's the Bratz goodwill! There is incredible value in the on-going Bratz name and business, including its spin-off businesses. If Bratz, the doll line, is killed off as a result of this lawsuit (a possibility under scenario 3 above), a very profitable money train will be derailed in the process. That is money that neither company will get.
In other words, there is value in the continued viability of Bratz -- and this value is up for grabs.
The parties will likely not let the line die; presumably, if they take this through the rest of trial and through all levels of appeal, they will cut a deal before they kill the goose laying the golden dolls. But why not resolve things now?
As of now, there is a big risk still for both companies. The leverage has changed considerably in the El Segundo toymaker's favor as a result of the verdict today, but there is still risk. Under all three scenarios, Mattel does not get the right to the Bratz name, and so cannot produce Bratz dolls, even if it owns the rights to the design. Even if it wins everything, it does not own the brand "Bratz." Even if Mattel has some success in branding a new doll based on the current Bratz design, it will still be leaving a substantial amount of very valuable goodwill on the table with the demise of the Bratz mark.
MGA, of course, is also facing serious risk. Risk of losing the entire company. Risk of losing the franchise in its most successful product. Risk of losing a lot of money, even if it does survive. And if MGA takes a big financial hit, even if not fatal, does the hit cripple the company's ability to continue marketing the Bratz line?
A simple merger (buy out) of the two companies is too easy a solution. Surely the two companies have thought of this already. And if they haven't, shame on them. Rather than kill the Bratz line, which is theoretically possible given the possible outcomes, the two companies could simply join forces to ensure that little girls everywhere continue to get to play with the dolls of their choice. Bratz lives. So does the money train attached to it. And both Mattel and the former MGA profit handsomely.
But as I said, that's too easy. What about something less comprehensive? A joint venture to produce and market the Bratz dolls, with talent, money, and drawings, from both companies being pooled to capitalize on the Bratz good will? One Plus One could very well equal three billion here.
How about a license arrangement? MGA continues to mine the Bratz gold mine for all it's worth, paying Mattel a hefty license fee that may offset the losses Mattel is facing with its Barbie line.
In other words, if an arrangement is developed that begins to get the players on the same side of the table, both profiting from the continuation of the Bratz line, this result may be better than taking the risk to win at trial.
It is almost like settling the case my favorite way...using OPM (Other People's Money). Only in this case, the money being used to fund the settlement is the Bratz goodwill, value that is in danger of being lost to both parties if they don't handle this properly.
Your thoughts and criticisms are welcome.
From the Los Angeles Daily Journal: Qualcomm, Nokia Settle Licensing Dispute 
Some cases just need to be tried. See 
We LOVE the law here at the IP ADR Blog. And we're huge supporters of the Rule of Law as society's Great Leveller. We're not, however, all that enamoured of lawsuits as a means to create business opportunity or to stem business losses.
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