USDC C.D. California, August 4, 2011

Click here for a copy of the full decision.

  • After jury verdict in favor of MGA for improper misappropriation of trade secrets, district court denies Mattel’s motion for judgment as a matter of law or for a new trial, and orders remittitur of $88.5 million award to $85 million to correct mathematical error and duplicate award by jury.

After the second trial in litigation between Mattel, Inc., the maker of Barbie dolls, and MGA Entertainment, Inc., maker of Bratz dolls, the jury returned a verdict in favor of MGA on its counterclaim for misappropriation of trade secrets, finding that Mattel had misappropriated 26 trade secrets and awarding $3.4 million for each trade secret, for a total award of $88.5 million. MGA's claim arose out of the activities of Mattel's so-called "Market Intelligence" Group; a collection of employees dispatched to international toy fairs and directed to gather information from Mattel's competitors' private showrooms through the use of false pretenses. MGA alleged that Mattel misappropriated 114 trade secrets from private toy fair showrooms. The jury found that MGA had established that 40 of the 114 claimed trade secrets qualified as trade secrets under the California Uniform Trade Secrets Act (CUTSA) and, of those 40, Mattel had misappropriated 26 using improper means.

Mattel moved for judgment as a matter of law or, in the alternative, for a new trial, as well as for remittitur of the award, on the grounds, inter alia, that MGA had not shown that it took sufficient steps to protect its trade secrets and that MGA had not proven damages with respect to each separate trade secret allegedly misappropriated. The district court denied the motion for judgment as a matter of law and for a new trial, finding that the jury’s verdict in favor of MGA was supported by the evidence. The court granted the request for remittitur and reduced the award to $85 million dollars, finding that the jury had awarded MGA $3.4 million twice for misappropriation of information related to the same product and had made a $100,000 mathematical error.

The court rejected Mattel’s arguments that MGA had failed to make reasonable efforts to maintain the secrecy of the claimed trade secrets, both generally and specifically, as to the 26 products and on a trade secret-by-trade secret basis. The court concluded that the factual record provided legally sufficient grounds for a reasonable jury to conclude that information about all 26 products at issue was subject to reasonable efforts to maintain secrecy. In evaluating whether MGA had satisfied its burden of proof as to a particular claimed trade secret, the jury was not required to “myopically restrict” its consideration to direct evidence about that particular trade secret, but rather could consider all of the evidence in the record. This evidence included information about (1) MGA's attempts to maintain the secrecy of other, similarly situated, trade secrets; (2) industry-wide practices like sign-in sheets and non-disclosure agreements at toy fairs; and (3) the extent and nature of Mattel’s improper conduct in gaining access to the information.

The court likewise rejected Mattel’s challenges to the jury’s finding of damages from its misappropriation. The California statute provides that a claimant may recover the damages it suffers as a result of the misappropriation of its trade secrets as well as the difference in value between its damages and the misappropriator's unjust enrichment. Mattel argued that there was no evidence that Mattel designed any product on the basis of any of the 26 categories of misappropriated trade secrets and that the jury's damage award was based , at least in part, on the unreliable testimony of MGA's damages expert.

Noting that Mattel’s argument was falsely based on the premise that MGA only attempted to prove that Mattel was unjustly enriched, and only by creating matching Mattel products, the court found that a reasonable jury could have concluded that MGA suffered actual damage as a result of the misappropriation, as well as unjust enrichment by Mattel. Specifically, the court noted evidence that established that misappropriation of advertising plans would lead to lost sales, lost profit and lost shelf space that would ultimately hurt MGA financially. Mattel could use advertising information to adjust their marketing plans and use freight on board pricing information to change their pricing. A reasonable jury could have concluded both that MGA suffered actual damage as a result of the misappropriation and that Mattel’s unjust enrichment extended beyond profits from the sale of toys that matched MGA's unreleased products.

In support of its motion for a new trial, Mattel also argued that the $88.5 million verdict rendered by the jury – $3.4 million for the misappropriation of each of 26 categories of trade secrets — lacked evidentiary support. The court disagreed. While Mattel’s actual use of the improperly acquired pricing, advertising and product development information was largely undocumented, MGA's expert witness testified that Mattel generated approximately $3.4 million in profits from each instance of trade secret misappropriation. The jury's reliance on his testimony was proper, since the expert used sales data from a broad and representative cross section of Mattel MyScene products to reach conservative conclusions about the unjust enrichment that flowed from Mattel’s acts of misappropriation. The court also instructed the jury that Mattel’s independent contributions to the success of its products did not qualify as unjust enrichment and the expert’s opinion included methods the jury could use to deduct those amounts.

The court granted Mattel’s request to remit the damages award from $88.5 million to $85 million, finding that the jury had made a mathematical error that resulted in an award of $100,000 more than the sum total of $3.4 million for each of the 26 individual awards – or $88.4 million. The court also remitted the $88.4 million award to $85 million, concluding that the jury may have twice awarded MGA a $3.4 million recovery for the misappropriation of information about one product.