BUSINESS

Mattel Loses Lawsuit With MGA Entertainment Over Bratz Dolls

04/21/2011 04:19 pm ET | Updated Jun 21, 2011

SANTA ANA, California (Nichola Groom) - Mattel Inc, after waging a seven-year legal war against a tiny California company, swallowed a surprise defeat on Thursday after a U.S. jury decided that MGA Entertainment Inc is the rightful owner of the once-billion dollar line of pouty-lipped Bratz dolls.

The astonishing loss for the world's largest toy maker concluded a case that began in 2004, when MGA's line of dolls was all the rage among teen and preteen girls. Mattel accused Van Nuys, California-based MGA of stealing its designs by hiring away a key employee.

Mattel CEO Robert Eckert sat stone-faced, staring straight ahead as the verdict was read on Thursday in a Santa Ana, California, federal courtroom. He said afterward that he was disappointed by the verdict.

"We remain committed to protecting the intellectual property that is at the heart of business success," Eckert said in an email.

MGA Chief Executive Isaac Larian, meanwhile, said the case has been a prolonged battle for his family.

"It very well shows that in America, even huge corporations are not above the law," Larian told Reuters afterward.

A federal jury in 2008 ordered MGA and Larian to pay Mattel $100 million, but a federal appeals court threw out that ruling last year.

MGA then accused Mattel of gaining entry to toy fairs with false credentials to steal trade secrets and concealed evidence of these activities.

The jury found Mattel misappropriated trade secrets from MGA and awarded MGA $88.5 million in damages. The jury also decided MGA had interfered with Mattel's contract with designer Carter Bryant, but awarded only $10,000 in damages to Mattel.

BMO Capital Markets analyst Gerrick Johnson said the failure to settle will go down as a "tremendously bad decision" by Mattel management.

"It means they wasted $400 million or so of shareholder money to get zero return," Johnson said.

At the height of its popularity, in 2005 and 2006, the urban-chic Bratz dolls -- sporting short skirts and flirty, midriff-baring tops -- ate into Mattel's market share and were viewed as a threat to Mattel's key Barbie franchise.

The craze died down, however. MGA accused Mattel of costing the company hundreds of millions in litigation.

U.S. District Judge David Carter said the trade secrets damages could be lowered to $88.4 million due to a calculation mistake by the jury.

Wells Fargo analyst Tim Conder said he expected Mattel to appeal, but called the likelihood of a material change "doubtful."

Mattel's shares fell as much as 2.8 percent to a low of $26.17 after the verdict was announced, before bouncing back slightly to stand 0.9 percent lower at $26.70. The stock had been roughly flat throughout the morning session.

The case in U.S. District Court, Central District of California is Mattel Inc. v. MGA Entertainment Inc., 04-9049.

(Reporting by Nichola Groom and Dhanya Skariachan; Writing by Dan Levine; Editing by Maureen Bavdek, Gerald E. McCormick and Matthew Lewis)

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