The Ninth Circuit Court of Appeal has vacated Mattel’s hard-won injunction on behalf of its Barbie doll, finding the remedy imposed by the District Court too broad.

In 2008, Mattel won a lawsuit claiming MGA had infringed its copyright and breached a contract because the designer of Bratz dolls was still under contract to Mattel when he developed the Bratz concept for MGA Entertainment, the makers of the rival (and currently more popular) Bratz doll range. A jury awarded Mattel $100 million.

Mattel had argued that Carter Bryant had come up with the Bratz dolls concept when he was working for Mattel. He left Mattel in or around 2000 for MGA and shortly after his move, MGA had started marketing the Bratz doll. MGA had argued that the Bryant had created the concept during a period of time when he was not working for Mattel. However, this argument fell by way side during the original case and Mattel convinced a federal jury that the employee conceived the Bratz idea whilst in its employ.

In April 2009, a federal judge upheld the jury verdict and imposed a constructive trust over all trademarks including the terms “Bratz” and “Jade,” essentially transferring the Bratz trademark portfolio to Mattel.

The Ninth Circuit has now ruled the District court erred in making this decision. “It 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 mis-appropriated names. The district court’s imposition of a constructive trust forcing MGA to hand over its sweat equity was an abuse of discretion and must be vacated. ” The Court pointed out that evebn the jury seemed to grasp this point when it awarded Mattel only $10 million, or about 1% of $1 billion it sought, because it found only a small portion of the Bratz dolls infringing.

The Court also took issue with the District Courts decision prior to trial, to find that Bryant’s employment agreement assigned his ideas to Mattel, and so instructed the jury. The Ninth Circuit judges however concluded that whilst the agreement could be interpreted to cover ideas, and a Mattel executive claimed during her deposition that it was common knowledge in the design industry that terms like “invention” and “design” did include employee ideas, the text doesn’t compel that reading and other Mattel employee contracts actually specified that ideas were covered.

Bryant’s 1999 employment agreement, which provides: “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.” (Emphasis added.) The contract specifies that “the term ‘inventions’ includes, but is not limited to, all discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable.”

The court also found that the phrase “at any time during my employment” is ambiguous stating that it could easily refer to the entire calendar period Bryant worked for Mattel, including nights and weekends – or just working hours. The District court erred in deciding there was no ambiguity. It also erred in affording broad protection against substantially similar works to the original sculpt of the dolls; and whilst it didn’t err in affording the doll sketches broad copyright protection against substantially similar works, it did err in failing to filter out all the unprotectable elements of Bryant’s sketches – “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… This error was significant. Although substantial simi-
larity was the appropriate standard, a finding of substantial similarity between two works can’t be based on similarities in unprotectable elements. ”

The Court concluded ” On remand, Mattel will have to convince a jury that the agreement assigned Bryant’s preliminary sketches and sculpt, either because the agreement assigns works made outside the scope of employment or because these works weren’t made outside of Bryant’s employment. And, in order to justify a copyright injunction, Mattel will have to show that the Bratz sculpts are virtually identical to Bryant’s preliminary sculpt, or that the Bratz dolls are substantially similar to Bryant’s sketches disregarding similarities in unprotectable ideas.”

“Because several of the errors we have identified appeared in the jury instructions, 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 need to be retried.”

This has always been an interesting case and it looks like we set for several more years of it. A reading of the judgment gives hope to both sides. The court doesn’t say that Mattel has lost the case, but more that the District Court ignored too many ambiguous aspects of the case, resulting in an overbroad finding against MGA.