Ninth Circuit unanimously reverses injunction in dispute over Bratz brand

United States of America

In Mattel Inc v MGA Entertainment Inc (Cases 09-55673 and 09-55812, July 22 2010), in a unanimous ruling, the US Court of Appeals for the Ninth Circuit has reversed the Central District Court of California’s December 2008 decision, in which the latter had placed the BRATZ marks in a constructive trust.

Carter Bryant, a fashion designer for Barbie, was still under contract with Mattel Inc when he developed the Bratz concept, including the names of some characters, the preliminary sculpt (a mannequin-like plastic model) and sketches for the Bratz dolls. He approached MGA Entertainment Inc with his Bratz idea and, shortly thereafter, left Mattel to develop the Bratz line with MGA. In 2001 MGA launched its Bratz dolls, which competed directly with Mattel’s Barbie dolls. Upon discovering that Bryant had conceived the Bratz idea while he was still employed by Mattel, Mattel sued MGA and Bryant for copyright and trademark infringement, and various alleged state law violations.

In 2008 a jury awarded Mattel $10 million in damages (well below the $1 billion Mattel had sought). The district court granted equitable relief based on the jury’s finding and imposed a constructive trust over all Bratz-related trademarks, prohibiting MGA from producing and marketing virtually any Bratz products, as well as any future dolls substantially similar to Mattel’s copyrighted Bratz works. MGA appealed.

The Ninth Circuit first analysed the language contained in Bryant's employment contract, and found that the district court had erred in holding that Mattel’s employment agreement was broad enough to cover unambiguously the idea for Bratz. The court explained that there was ambiguity in the contract, in which Bryant had agreed to assign to Mattel “all inventions… at any time during [his] employment”. While the agreement covered 'inventions', it did not necessarily include 'ideas'. According to the Ninth Circuit, ideas “are ephemeral and often reflect bursts of inspiration that exist only in the mind” and, therefore, they were “markedly different” from the more concrete inventions listed in the contract, such as “designs, processes, computer programs and formulae”. Therefore, the issue of whether the contract covered ideas should have been decided by a properly instructed jury, and not summarily by the judge.

The Ninth Circuit found another ambiguity in the contract. The contract assigned to Mattel inventions created “at any time during [Bryant’s] employment”. The court noted that this phrase could be interpreted to cover the entire calendar period Bryant worked at Mattel, including nights and weekends or, more narrowly, to include only those inventions created during work hours. Therefore, because the language was ambiguous, the issue of whether Bryant’s works were created outside of its employment contract should also have been resolved by the jury, and not at summary judgment.

Moreover, in reversing the order, the Ninth Circuit held that the district court’s imposition of a constructive trust was an abuse of discretion because it would be unfair to assign the entire Bratz brand to Mattel after MGA had added significant value by turning the idea into a successful brand. The court noted that “[i]t is 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”. The Ninth Circuit explained that, even if MGA misappropriated some of the Bratz-related names, “the value of the trademarks the company eventually acquired for the entire Bratz line was significantly greater because of MGA’s own development efforts, marketing and investment”.

The Ninth Circuit also reversed the district court’s conclusion that MGA’s Bratz dolls were substantially similar to Mattel’s Barbie, focusing on the distinction between ideas, which cannot be copyrighted, and the protectable expression of these ideas.

Regarding the Bratz doll sculpt, the Ninth Circuit held that the district court had given it improperly broad copyright protection by adopting the 'substantially similar' test, and concluded that it was entitled to only “thin copyright protection against virtually identical copying”. The court explained that many fashion dolls have exaggerated features, and the “concept of depicting a young, fashion-forward female with exaggerated features, including an oversized head and feet, is therefore unoriginal, as well as an unprotectable idea”.

As for the sketches, although the Ninth Circuit found that the district court had not erred in affording broad copyright protection to the sketches against substantially similar works, it held that the lower court erred in failing to filter out all of the unprotectable elements of the doll sketches because there is a “wide range of expression for complete young, hip female fashion dolls with exaggerated features”. The Ninth Circuit declared that “Mattel can't claim a monopoly over fashion dolls with a bratty look or attitude, or dolls sporting trendy clothing - these are all unprotectable ideas”. Accordingly, “although substantial similarity was the appropriate standard, a finding of substantial similarity between two works can’t be based on similarities in unprotectable elements”.

Because there were errors in the jury instruction, the court concluded that “it's likely that a significant portion - if not all - of the jury verdict and damage award should be vacated, and the entire case will probably need to be retried”.

Although the court remanded the case, this decision contains significant findings. The high-profile opinion reminded employers to define clearly the terms contained in their employment contracts and to avoid ambiguity, especially regarding 'inventions' that employees must assign to the company. It may be now more difficult for employers to claim ownership of the intellectual property of their employees. Moreover, the court reiterated that a plaintiff should not be able to recover damages based on all the defendant’s profits when the defendant added its own efforts in creating and developing a brand. This ruling can significantly limit the amount of damages awarded in related IP cases. Lastly, the Ninth Circuit reaffirmed that the distinction between 'ideas' and 'expressions' should be properly maintained. After all, the whole purpose of copyright law is to maintain a balance between the stimulation of creativity and the free expression of ideas.

The Ninth Circuit started its opinion with the question: “Who owns Bratz?”. Even if the court refused to give a definitive answer, the case is a major legal victory for MGA and gives Mattel reasons to worry, as the last sentence clearly reflects the general tone of the opinion: “America thrives on competition; Barbie, the all-American girl, will too.” Regardless, Mattel has stated that it is looking forward to a “full trial”.

Laure Hadas-Lebel, Arent Fox LLP, Washington DC

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