Barbie v. BratzBarbie v. Bratz (Mattel Inc. v. MGA Entertainment (Mattel Inc. v. MGA Entertainment

Inc.)Inc.)

Prepared by:Prepared by:

Nikolai & Mersereau, P.A.Nikolai & Mersereau, P.A.

900 Second Avenue South, Suite 820900 Second Avenue South, Suite 820

Minneapolis, MN 55402Minneapolis, MN 55402

(612) 339-7461(612) 339-7461

www.nm-iplaw.comwww.nm-iplaw.com © Nikolai & Mersereau, P.A. 2008

About usAbout us

Nikolai & Mersereau, P.A.Nikolai & Mersereau, P.A. is a full service IP firm located is a full service IP firm located in Minneapolis, Minnesota. The firm represents individuals in Minneapolis, Minnesota. The firm represents individuals and businesses of all sizes in divergent technical areas.and businesses of all sizes in divergent technical areas.

Jim NikolaiJim Nikolai has practiced intellectual property law since has practiced intellectual property law since 1982 focusing on IP litigation, licensing, product and 1982 focusing on IP litigation, licensing, product and trademark clearance, and helping clients develop and trademark clearance, and helping clients develop and implement comprehensive IP strategies. Jim’s leadership implement comprehensive IP strategies. Jim’s leadership and experience in the area of patent litigation was and experience in the area of patent litigation was recognized by the judges of the U.S. District Court for the recognized by the judges of the U.S. District Court for the District of Minnesota when they appointed him to serve on District of Minnesota when they appointed him to serve on the Court’s Patent Advisory Committee which the Court’s Patent Advisory Committee which recommended new procedural rules used by the Court in recommended new procedural rules used by the Court in patent cases.patent cases.Phone: (612)392-7302 Email: Phone: (612)392-7302 Email: Jim.Nikolai@nm-iplaw.comJim.Nikolai@nm-iplaw.com

After serving in the U.S. Navy aboard two fast attack After serving in the U.S. Navy aboard two fast attack nuclear submarines, nuclear submarines, Jim PaigeJim Paige earned an electrical earned an electrical engineering degree from Iowa State University and his law engineering degree from Iowa State University and his law degree from Drake University, graduating with honors from degree from Drake University, graduating with honors from both institutions. Since 2001, Jim has worked extensively both institutions. Since 2001, Jim has worked extensively on the protection of medical device, signal processing, on the protection of medical device, signal processing, communication and digital microelectronic technologies. communication and digital microelectronic technologies. Jim was recognized as a “Rising Star” in the field of IP law Jim was recognized as a “Rising Star” in the field of IP law by by Minnesota Law & PoliticsMinnesota Law & Politics magazine in 2005. magazine in 2005. Phone: (612)392-7310 Email: JPhone: (612)392-7310 Email: Jim.Paige@nm-iplaw.comim.Paige@nm-iplaw.com

Undisputed FactsUndisputed Facts

Ruth Handler created Barbie in 1959 Ruth Handler created Barbie in 1959 and co-founded Mattel, Inc.and co-founded Mattel, Inc.

Thanks to Barbie, Mattel is now the Thanks to Barbie, Mattel is now the largest toy company in the worldlargest toy company in the world

Carter Bryant worked for MattelCarter Bryant worked for Mattel Bryant left Mattel’s employmentBryant left Mattel’s employment Bryant joined MGA Entertainment Bryant joined MGA Entertainment Bryant developed the Bratz concept Bryant developed the Bratz concept MGA introduced the Bratz line in 2001MGA introduced the Bratz line in 2001

Why the fight?Why the fight?

Mattel had $5.9 billion in sales last Mattel had $5.9 billion in sales last year--Mattel, Inc. 10K Report year--Mattel, Inc. 10K Report

Barbie comprises 21% of Mattel’s sales--Barbie comprises 21% of Mattel’s sales--Bloomberg.com, May 13, 2008Bloomberg.com, May 13, 2008

Barbie sales are dropping--Barbie sales are dropping--Los Angeles Los Angeles TimesTimes, May 27, 2008, May 27, 2008

““Bratz is … the most serious Bratz is … the most serious competitive threat that Barbie has faced competitive threat that Barbie has faced in its almost 50-year life”--Sean in its almost 50-year life”--Sean McGowanMcGowan

Bryant paid $30 million in royalties--Bryant paid $30 million in royalties--Minneapolis Star TribuneMinneapolis Star Tribune, June 6, 2008, June 6, 2008

Legal contentionsLegal contentions

Mattel v. BryantMattel v. Bryant– Bryant assisted MGA in violation of his Bryant assisted MGA in violation of his

contractual and other duties to Mattelcontractual and other duties to Mattel Bryant v. MattelBryant v. Mattel

– Mattel’s Confidential and Proprietary Mattel’s Confidential and Proprietary Inventions Agreements are invalidInventions Agreements are invalid

– Bryant’s conveyance of the rights in Bryant’s conveyance of the rights in Bratz to MGA was proper and did not Bratz to MGA was proper and did not misappropriate Mattel’s rightsmisappropriate Mattel’s rights

Legal contentions Legal contentions (continued)(continued) Mattel v. MGAMattel v. MGA

– Copyright infringementCopyright infringement– RICO violationsRICO violations– Trade secret misappropriationTrade secret misappropriation– Intentional interference with a contractIntentional interference with a contract– Aiding and abetting Aiding and abetting

breach of fiduciary dutiesbreach of fiduciary duties breach of duty of loyaltybreach of duty of loyalty

– Unfair competition Unfair competition

Legal contentions Legal contentions (continued)(continued) MGA v. MattelMGA v. Mattel

– Trade dress infringementTrade dress infringement– Trade dress dilutionTrade dress dilution– False designation of originFalse designation of origin– Unfair competitionUnfair competition– Unjust enrichmentUnjust enrichment

What intellectual property What intellectual property legal contentions have legal contentions have not been made?not been made?

Patent infringementPatent infringement

MattelMattel

When relying on employee ideas to further When relying on employee ideas to further businessbusiness– Implement “idea” or “invention disclosure” Implement “idea” or “invention disclosure”

notebooksnotebooks Require the notebooks be secured or turned in regularlyRequire the notebooks be secured or turned in regularly Require all “ideas” to be within the notebook Require all “ideas” to be within the notebook Require the notebook to be turned in upon termination Require the notebook to be turned in upon termination

of employee (perhaps confiscate before termination)of employee (perhaps confiscate before termination)

– Implement an employee agreementImplement an employee agreement Agreement clearly lays out all IP developed during Agreement clearly lays out all IP developed during

employment related to employment is Mattel’s propertyemployment related to employment is Mattel’s property Further, all IP related to employment after the employee Further, all IP related to employment after the employee

leaves could also potentially be Mattel’s leaves could also potentially be Mattel’s

MattelMattel

Prevent idea theft by competitors Prevent idea theft by competitors – Develop a non-compete agreement for all employeesDevelop a non-compete agreement for all employees

Make sure agreement is reasonable in time (less than 3 Make sure agreement is reasonable in time (less than 3 years), scope (employee’s job at Mattel), and geography years), scope (employee’s job at Mattel), and geography (local v. national company)(local v. national company)

– Develop a non-disclosure agreement for all employees Develop a non-disclosure agreement for all employees – Develop trade secret protection protocolDevelop trade secret protection protocol

Limit employees who have access to trade secretsLimit employees who have access to trade secrets Ensure trade secrets are kept in a protected placeEnsure trade secrets are kept in a protected place

Protect copyrightsProtect copyrights– Mark materials with copyright notice Mark materials with copyright notice – Insist on “work for hire” agreements with consultantsInsist on “work for hire” agreements with consultants– Implement and enforce registration guidelinesImplement and enforce registration guidelines

Protect trademarks, trade names, trade dress and Protect trademarks, trade names, trade dress and service marks service marks – Clearances for proposed marksClearances for proposed marks– Applications for registration Applications for registration

MattelMattel

PatentingPatenting– Develop an internal patenting processDevelop an internal patenting process

Reward system for employees obtaining patents for the Reward system for employees obtaining patents for the companycompany

Managerial review of patent submissions to weed out Managerial review of patent submissions to weed out patent submissions of no value to companypatent submissions of no value to company

Develop patent board to determine what patents get Develop patent board to determine what patents get filedfiled

– Create Standards (e.g.)Create Standards (e.g.) 75% of high value submissions get filed75% of high value submissions get filed 50% of medium value submissions get filed50% of medium value submissions get filed 25% of low value submissions get filed (this helps 25% of low value submissions get filed (this helps

prevent the “wild card” idea from getting away)prevent the “wild card” idea from getting away) Consider types of patents available (apparatus, Consider types of patents available (apparatus,

method, process, design, plant, etc.)method, process, design, plant, etc.) Match foreign filing strategy to important markets or Match foreign filing strategy to important markets or

potentially important future marketspotentially important future markets

Bryant & MGABryant & MGA

When hiring a competitor’s employee When hiring a competitor’s employee – Check non-compete agreementsCheck non-compete agreements– Check non-disclosure obligationsCheck non-disclosure obligations

StatutoryStatutory ContractualContractual

– Check employee’s invention assignment obligationsCheck employee’s invention assignment obligations– Check prior employer’s rights to employee’s work Check prior employer’s rights to employee’s work

productproduct– Check to make sure the employee has left Check to make sure the employee has left allall

documents of the prior employer behinddocuments of the prior employer behind– Restrict the employee to duties negating inevitable Restrict the employee to duties negating inevitable

disclosure of prior employer’s trade secretsdisclosure of prior employer’s trade secrets– Document ground rules for employee to follow:Document ground rules for employee to follow:

No recruitingNo recruiting No use of prior employer’s IPNo use of prior employer’s IP Keep clear and thorough documentation of work to show Keep clear and thorough documentation of work to show

where and how it was performedwhere and how it was performed

Bryant & MGABryant & MGA

When introducing a productWhen introducing a product– Is there interfering IPIs there interfering IP

PatentsPatents CopyrightsCopyrights TrademarksTrademarks

– How can IP of others be avoidedHow can IP of others be avoided– LicensesLicenses

Is there IP that needs to be licensedIs there IP that needs to be licensed From whomFrom whom

– Is IP protection strategy in placeIs IP protection strategy in place

Bryant & MGABryant & MGA

IP protection strategyIP protection strategy– What IP is potentially availableWhat IP is potentially available

PatentPatent Trademark/service mark/trade dressTrademark/service mark/trade dress Copyright Copyright Trade secretsTrade secrets

– Where should protection be soughtWhere should protection be sought– What are the deadlinesWhat are the deadlines– Who will manage the effortWho will manage the effort

RemediesRemedies

PatentPatent– InjunctionInjunction– Lost profits/reasonable Lost profits/reasonable

royaltyroyalty– Triple damagesTriple damages– Costs and attorney feesCosts and attorney fees

CopyrightCopyright– InjunctionInjunction– Owner’s damages and Owner’s damages and

profits of the infringerprofits of the infringer– Statutory damagesStatutory damages– Costs and attorney feesCosts and attorney fees– Criminal sanctions—Criminal sanctions—

imprisonment and finesimprisonment and fines

TrademarkTrademark– InjunctionInjunction– Owner’s damages and Owner’s damages and

profits of the infringerprofits of the infringer– Triple damagesTriple damages– Costs and attorney feesCosts and attorney fees

Trade secretTrade secret– InjunctionInjunction– Damages/unjust Damages/unjust

enrichment/reasonable enrichment/reasonable royaltyroyalty

– Double damagesDouble damages– Costs and attorney feesCosts and attorney fees– Criminal sanctions—10 Criminal sanctions—10

years in prison, $5 years in prison, $5 million in finesmillion in fines

IntellectualIntellectualPropertyProperty It is all about risk and returnIt is all about risk and return

– Reducing risk that others will be able Reducing risk that others will be able to keep you from not receiving full to keep you from not receiving full return on investmentreturn on investment

– Increasing risk to others who might Increasing risk to others who might try to reap profits from your try to reap profits from your development effortsdevelopment efforts

Mattel and MGA each have tied Mattel and MGA each have tied their future to their intellectual their future to their intellectual property rightsproperty rights

Who Won?Who Won?

Liability Verdict (July 17, 2008)Liability Verdict (July 17, 2008)– MGA found liable on 15 of 15 countsMGA found liable on 15 of 15 counts

Damages Verdict (August 26, 2008)Damages Verdict (August 26, 2008)MGAMGA LarianLarian MGA Hong MGA Hong

KongKong

Intentional Interference with Intentional Interference with Contractual RelationsContractual Relations

$ $ 20,000,00020,000,000

$ $ 10,000,00010,000,000

Aiding and Abetting Breach of Aiding and Abetting Breach of Fiduciary DutyFiduciary Duty

$ $ 20,000,00020,000,000

$ $ 10,000,00010,000,000

Aiding and Abetting Breach of Duty Aiding and Abetting Breach of Duty of Loyaltyof Loyalty

$ $ 20,000,00020,000,000

$ $ 10,000,00010,000,000

ConversionConversion $ $ 31,50031,500

Copyright InfringementCopyright Infringement $ $ 6,000,0006,000,000

$ $ 3,000,0003,000,000

$ $ 1,000,0001,000,000

TOTALTOTAL $ $ 66,031,50066,031,500

$ $ 33,000,00033,000,000

$ $ 1,000,0001,000,000

QuestionsQuestions

Jim Nikolai and Jim PaigeJim Nikolai and Jim PaigeNikolai & Mersereau, P.A.Nikolai & Mersereau, P.A.900 Second Avenue South900 Second Avenue SouthMinneapolis, MN 55402Minneapolis, MN 55402(612) 339-7461(612) 339-7461www.nm-iplaw.comwww.nm-iplaw.comJim.Nikolai@nm-iplaw.comJim.Nikolai@nm-iplaw.comJim.Paige@nm-iplaw.comJim.Paige@nm-iplaw.com