Barbie vs. Bratz Dolls: IP and Intangible Assets In Play…Again!

Why is it important for companies to (proactively) unravel and monitor the origins, ownership, defensibility and audit-ability of their intellectual property and other intangible assets?  Well…

 By Michael Moberly

On April 21, 2011, an eight person federal jury returned a unanimous verdict supporting MGA Entertainment, indicating that Mattel had not proved its allegations of copyright infringement.  And yes, the verdict was a major turnabout from the earlier June, 2008 trial in a Riverside (CA) Federal court where toymaker Mattel, owner of the Barbie empire, alleged that MGA Entertainment conspired with designer Carter Bryant to steal the idea for the Bratz dolls while Bryant worked for Mattel, thus, engaging in copyright infringement when they (MGA) commercialized the dolls. 

Mattel’s attorney, Bill Price, told jurors "the case is really about transforming a company and building a brand by using another company’s confidential information and ideas’ and ‘if you can use another company’s confidential designs and innovation, competition will die."  Of course, MGA legal counsel painted quite a different picture, describing Mattel as a ruthless corporation bent on destroying anyone who threatened the dominance of the Barbie brand.

This case represents one more costly (in your face) example why the practice of "that’s the way we’ve always done it" is no longer relevant when valuable IP and intangible assets are in play – at stake!  For companies with intensive and valuable portfolios of IP and intangible assets, continuing to do things the way they’ve always been done, no longer serves the legal interests of owners-holders of those assets especially in light of the economic fact that 65+% of most companies’ value, sources of revenue and building blocks for growth and profitability lie in – directly evolve from intangible assets, i.e., intellectual, relationship, and structural capital and of course, intellectual property.

Setting aside for a moment, the charges that were filed in this case, and the dissing behavior in which both sides engaged, the case may well have boiled down to a procedural/due diligence question; did either side effectively unravel and consistently monitor the origins and development of the idea (concept) and associated drawings that gave rise to the Bratz dolls and ensuing controversy that eventually brought the parties to court?  Clearly this is a ‘contestable’ point!  But, had this been meticulously executed and become an integral part of the company culture, it surely would have lessened, if not prevented, this case rising to the level it did.

When hundreds of millions of dollars are at stake, decisions in C-suites and boardrooms are appropriately guided by profits, but also, and hopefully, by experienced guesstimates about the defensibility of a company’s practices, should those be contested and legal action filed.  It seems equally rational however, especially in the extraordinarily aggressive, competitive, and winner-take-all global markets that routinely exist today, when not only a company’s reputation and image are at stake, but potentially millions, if not billions of dollars of revenue, legal challenges over control, use, and ownership of IP and intangible assets are seemingly becoming the norm.  So, adopting proactive best practices to unravel the origins and monitor the development of ideas and innovation must go well beyond mere declarations appearing on patent applications and/or the wishful thinking assumptions embedded in non-disclosure, confidentiality, and non-compete employment agreements.

An important key to this and other cases where infringement is being alleged is how a jury (court) will interpret the scope of an invention agreement that employees routinely sign with their employer particularly in companies in which innovation is integral to one’s work.

In June, 2010, the Ninth Circuit Court of Appeals declared that ownership of the Bratz franchise belonged to MGA Entertainment thereby rejecting the lower court’s ruling that had favored Mattel where MGA was ordered to forfeit the entire Bratz brand.  But, Mattel and MGA returned to court in January, 2011 to re-engage their custody battle over the ownership of Bratz dolls.  This time, on April 21, 2011, an eight person federal jury returned a unanimous verdict supporting MGA indicating that Mattel had not proved its allegations of copyright infringement.  And yes, the verdict was a major turnabout from the earlier (2008) trial which awarded Mattel nearly $100M.

The important takeaways for companies operating in environments in which ideas, innovation, trade secrets and proprietary information are the norm, is to bring:

1.  Clarity and transparency to idea/innovation development processes reflective of the six requisites to trade secrecy;

2. Respectful bridges between innovators, collaborators, IP counsel, business unit managers, and decision makers to produce efficiencies and improved oversight, stewardship, and management of the relevant IP and intangibles;

3. Comprehensive picture of (a) what know how/intellectual capital warrants protection, (b) when proprietary status (safeguards) should attach, and (c) how to tailor risk mitigation measures commensurate with the assets’ (projected) life and value cycle and company culture; and

4. Rationale to facilitate broad buy in to strengthen compliance aligned with best practices necessary to protect/preserve (sustain) control, use, ownership, value, and brand integrity of those assets!

It is important today to proactively unravel and monitor the origins and development of ideas and innovation!