Thursday, July 29, 2010

Chapter Two in the Saga of Mattel, Inc. v. MGA Entertainment (aka Barbie v. Bratz)

On July 22nd, the Ninth Circuit Court of Appeals delivered its much awaited decision in Mattel, Inc., v. MGA Entertainment, Inc., reversing a District Court decision which had, in effect, transferred all rights to the multi-billion dollar Bratz line of dolls and related items over to Mattel. At the core of the dispute is Carter Bryant, a former Mattel employee who developed the Bratz concept and prototype dolls while employed as a Barbie fashion and hairstyle designer.
The District Court found for Mattel on both trademark and copyright infringement claims, imposing a constructive trust in favor of Mattel as to the Bratz trademarked product lines, and issuing a injunction preventing MGA from using any of the copyrights attached to the products as well.

Chief Judge Alex Kozinski, writing for a unanimous panel, first questioned the District Court’s finding that Bryant’s 1999 Mattel employment agreement gave the company ownership of any ideas he developed. The relevant language read:

“I agree to communicate to the Company…all inventions conceived or reduced to practice by me at any time during my employment by the Company. I hereby assign to the Company all 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.”

The agreement defines inventions as “all discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable”.

So once again a major multi-billion dollar case hinges on a poorly drafted contract. If Mattel had wanted to secure rights to anything Bryant created, why not require him to sign an express work for hire transfer of all works eligible for protection under copyright law anywhere in the world? The disputed language sounds almost entirely in patent, except for the gratuitous addition of the word “copyrights”. This uncertainty, along with an erroneous application of an overly broad scope of copyright protection in the dolls design, and related errors, led the Court of Appeals to overrule the District Court’s decision and remand the case for retrial. Ah well, this is how we keep IP litigators employed.

Aside from the pleasure of reading another characteristically witty and erudite opinion by Judge Kozinski, perhaps the most significant portion of the opinion is found in Section II B, where the scope of damages is discussed. The Court notes that even if Mattel can prove ownership of the Bratz concept and first production prototype (called a “sculpt” in the doll industry), it should not be able to recover from MGA damages based on the huge profits MGA earned by taking the concept and developing it, through their own sweat equity and creativity. The Court holds:

“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 misappropriated names.”

The significance of this analysis is its likely application to the copyright termination cases now wending their way through district courts in New York and Los Angeles over the rights to the hugely successful comic book empires of DC Comics (built around Superman) and Marvel Comics (built on the characters created by Jack Kirby in the 1958-63 period, including Thor, The Fantastic Four, the Avengers, Hulk and Iron Man). In each of these cases, the heirs of the original creators of these comic book superheroes seek to terminate their grant of copyright to the publishers, and recapture those rights for their own benefit. A key issue in the cases is what rights the heirs have to derivative works created and exploited by those publishing companies, which greatly enhanced and extended the value of the original properties. If the holding in the Mattel case applies, it could have the effect of significantly limiting the range of applicable damages in those copyright termination cases. I am working on several extensive articles dealing with these copyright termination cases, so I’ll be watching these developments closely, and I’ll keep you apprised of the effect of this decision on those cases.

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