Copyright Law | Expert Legal Commentary

October 18, 2010

Mattel v. MGA: Specific Employment Contract Terms Dictate Employer Copyright Claims

Mattel, Inc. v. MGA Entm’t Inc.

By Thomas F. Zuber and Ryan Smith of Zuber & Taillieu

Mattel v. MGA: Specific Employment Contract Terms Dictate Employer Copyright Claims

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In a dramatic ending to a dramatic case, the Ninth Circuit reversed and vacated the enormous award Mattel had received in its claims against MGA for wrongfully procuring and manufacturing “BRATZ” dolls, to which Mattel claimed the copyright. In Mattel, Inc. v. MGA Entm’t Inc., ___ F.3d ___, Nos. 09-55673, 09-55812, 2010 WL 2853761 (9th Cir. July 22, 2010), the Circuit Court found that the specific language in the inventor’s employment contract likely did not enable Mattel to claim copyright over the BRATZ line. Moreover, the Circuit Court vacated the district court’s award to Mattel of a constructive trust over the BRATZ line, finding it an overbroad remedy and an abuse of the lower court’s discretion as a result.

BACKGROUND

In 2000, Carter Bryant, a Mattel employee at the time, created the concept for a new line of toy dolls that he dubbed “BRATZ,” featuring exaggerated heads and feet with elongated bodies. He drew some preliminary sketches and made a rudimentary model of the doll, then pitched the idea to MGA Entertainment, a rival of Mattel. MGA hired Bryant as a consultant and he worked on the concept with MGA while he was still employed by Mattel. MGA launched the line shortly after Bryant gave his notice to Mattel; the line was a huge success, bringing substantial revenue to MGA and spawning similar lines, videos, movies, and more.

When Mattel discovered that the BRATZ dolls had been created and developed by a Mattel employee, it sued Bryant and MGA on a variety of claims, asking the Court to find that the BRATZ concept and products belong to Mattel, primarily under the terms of Bryant’s employment contract. Mattel claimed that Bryant violated his employment contract by taking his BRATZ idea to MGA instead of disclosing and assigning it to Mattel. Mattel claimed that under that employment contract, it was the rightful owner of Bryant’s initial sketches and model, upon which all subsequent BRATZ products were based. It claimed that MGA had wrongfully acquired the BRATZ product names, so the trademarks should be transferred from MGA to Mattel.

A jury agreed with Mattel that Bryant had thought of the concepts while employed at Mattel and that MGA had violated the law relating to Bryant’s involvement with BRATZ. The jury issued a general verdict finding MGA liable for infringing Mattel’s copyrights in Bryant’s preliminary BRATZ works, and it awarded Mattel $10 million in damages (though Mattel had asked for $1 billion). Following the trial and in reliance on the jury’s findings, the district court awarded Mattel equitable relief in the form of a constructive trust over all of the BRATZ trademarks, effectively transferring the entire BRATZ line to Mattel. The district court further enjoined MGA from manufacturing or distributing any dolls substantially similar to any dolls in the original or spin-off BRATZ lines.

Due to Ambiguity in Bryant’s Employment Contract, the District Court Erred on Several Counts

The Ninth Circuit Court reversed, finding that the district court erred on several important issues and stating that “the entire case will probably need to be retried.” Mattel, Inc. v. MGA Entm’t Inc., ___ F.3d ___, Nos. 09-55673, 09-55812, 2010 WL 2853761, *11 (9th Cir. July 22, 2010)

The imposition of the constructive trust turned on whether Bryant’s employment contract assigned to Mattel his original BRATZ doll concepts. The employment contract stated: “I agree to communicate to [Mattel] 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 [Mattel] . . . all my right, title and interest in such inventions . . . .”

First, the Circuit Court found that the district court erred when it held that, as a matter of law, the term “inventions” in Bryant’s employment covered ideas like Bryant’s BRATZ doll concept. The Circuit Court determined that “inventions” in Bryant’s contract focused on concrete innovations, and may not extend to mere “ephemeral” ideas. 2010 WL 2853761, *3. While the contract “could be interpreted to cover ideas, the text doesn’t compel that reading” and thus the district court’s finding on this issue as a matter of law was improper. Id. The Circuit Court remanded the issue to the district court to allow extrinsic evidence regarding the meaning of the term “inventions” in the contract for consideration by a jury. Id.

Second, regardless of whether Bryant’s employment agreement included ideas in the definition of inventions, the Circuit Court found that the district court’s constructive trust and injunction were “very broad” because they included more than the original BRATZ concepts, but all products that spun off of those original ideas that resulted from MGA’s extensive “sweat equity.” Id. The Circuit Court determined that this sweeping transfer of the entire BRATZ portfolio was not appropriate because it failed to recognize MGA’s own investment in the line, including substantial product development and marketing. Id. at *4. The Circuit Court held that the district court’s relief wrongfully enabled Mattel to “acquire[] the fruit of MGA’s hard work, and not just the appreciation in value of the ideas Mattel claims it owns.” Id. at *3.

Third, the Circuit Court agreed with the district court that the preliminary drawings and rudimentary model that Bryant created while he was still employed by Mattel were “inventions” under the terms of Bryant’s employment contract. However, the Circuit Court disagreed with the district court that the contract, and therefore Mattel’s copyright claims, extended to projects beyond Bryant’s scope of duties at Mattel. Id. at *5. (Bryant had created the sketches and model on his own time, not during working hours.) The Circuit Court vacated the district court’s summary judgment determination that Bryant’s employment contract assigned a copyright in the works to Mattel. The Circuit Court held that two important factual determinations should have been submitted to the jury: 1) whether the employment contract assigned copyrights to Mattel for works created outside the scope of Bryant’s employment; and 2) whether Bryant’s sketches and model were created outside the scope of his employment. Id. at *6. Because this issue casts doubt on Mattel’s ownership of the copyrights, the Circuit Court vacated the injunction and related damages award. Id.

Lastly, the Circuit Court acknowledged that upon consideration of all the evidence, a jury may determine that copyrights in the initial sketch and model do vest with Mattel, and it offered the district court some guidance as to making an award of damages on that determination. After reviewing the Ninth Circuit test for copyright infringement and Bryant’s original manifestations of his idea, the Circuit Court determined that Mattel would only be entitled to “thin” protection against only virtually identical copying of those original models. Id. at *9. In order to determine if MGA’s products were “substantially similar” to the original drawings and model, the court must first omit the many unprotectable elements that could be included in the dolls, given the relatively narrow range of expression available for such dolls. Id. at *8 and *10. Moreover, the district court had erred in affording protectability to the overall “bratty look or attitude” or concept of “dolls sporting trendy clothing,” neither of which is protectable. Id. at *10.

CONCLUSION

The stunning reversal of Mattel’s win shines a bright light on employers’ need for extraordinary clarity and specificity in any employment and work for hire agreement. The fact that Mattel’s contract with Bryant lacked clarity on whether “ideas” and inventions outside an employee’s regular scope of employment could be included as “inventions” under the contract directly caused Mattel’s dramatic loss.

Mattel also highlights the importance of investment by the alleged infringer. The Circuit Court recognized the substantial efforts MGA had made to develop, enhance, and market the brand that significantly contributed to its success, acknowledging that it would be inequitable for Mattel to gain the benefit of all of that work, even if its claim to the original copyrights had merit.

Having prevailed before the Ninth Circuit, MGA has now filed counterclaims against Mattel for, among other things, trade secret misappropriation, Civil RICO, and wrongful injunction. Whether these claims have merit against Mattel’s claims – or whether the counterclaims are merely an intriguing move to boost MGA’s leverage in settlement negotiations – remains to be seen.