2010 WL 2853761 (9th Cir. July 22, 2010)

ABSTRACT

In this suit between rival toy-doll makers, the Ninth Circuit Court of Appeals held that plaintiff was wrongly granted ownership of the BRATZ trademark portfolio and related copyrights, and vacated a $10 million damages award that had been awarded following a jury trial. The decision vacated the jury’s verdict and related district court orders, and set a high bar for plaintiff to assert rights in the BRATZ trademarks and doll appearance on remand.

CASE SUMMARY

FACTS

In 2000, a Mattel, Inc. (“Mattel”) employee, Carter Bryant, created a concept for a new toy-doll line. The line, dubbed BRATZ by Bryant, featured fashionable teen-aged dolls with exaggerated heads and feet and elongated bodies. Bryant created preliminary sketches and a rudimentary model as an example, named the first doll “Jade,” and pitched his idea to Mattel rival, MGA Entertainment, Inc. (“MGA”). MGA hired Bryant as a consultant and launched the new brand shortly after Bryant gave notice at Mattel, and Bryant worked on the concept with MGA while still employed by Mattel. The BRATZ dolls were a huge success, generating substantial revenue for MGA. When Mattel discovered that the BRATZ product was created by a Mattel employee, it sued Bryant and MGA on a variety of claims, asking the court to find that the BRATZ name, the individual doll names, and the doll concept belong to Mattel.

The various suits were consolidated and later divided into two trial phases. The first phase considered the ownership claims relating to the copyrights in the doll designs and the BRATZ and JADE trademarks. During phase one, Mattel argued that Bryant violated his employment agreement by going to MGA with his Bratz idea instead of disclosing and assigning it to Mattel. Mattel also claimed it was the rightful owner of Bryant’s preliminary sketches and model doll, which it argued MGA’s subsequent Bratz dolls infringed. And it asserted that MGA wrongfully acquired the ideas for the names “Bratz” and “Jade,” so the BRATZ trademarks should be transferred from MGA to Mattel.

At the conclusion of the first phase, the jury found that Bryant thought of the “Bratz” and “Jade” names, and created the preliminary sketches and sculpt while employed by Mattel. It found that MGA committed three state-law violations relating to Bryant’s involvement with Bratz. And it issued a general verdict finding MGA liable for infringing Mattel’s copyrights in Bryant’s preliminary Bratz works. The jury awarded Mattel $10 million in damages (Mattel had sought over $1 billion).

Relying on these jury findings, the district court imposed equitable relief, namely, a constructive trust over all of the BRATZ trademarks, effectively transferring MGA’s BRATZ trademark portfolio to Mattel. The district court also enjoined MGA from manufacturing or distributing any dolls substantially similar to the copyrighted BRATZ works. The injunction covered not just the original dolls, but also subsequent generations (e.g., “Bratz Slumber Party Sasha” and “Bratz Girlfriendz Nite Out Cloe”). MGA appealed the phase-one findings and related orders.

ANALYSIS

The Ninth Circuit reversed, concluding that the district court erred on several key issues.

The Ninth Circuit found that the constructive trust turned on whether Bryant assigned his ideas for “Bratz” and “Jade” to Mattel in the first place. Bryant’s employment contract provided: “I agree to communicate to [Mattel] as promptly and fully as practicable all inventions (as defined below) conceived or reduced to practice by me (alone or jointly by others) at any time during my employment by the Company . . . . I hereby assign to [Mattel] . . . all my right, title and interest in such inventions . . . .”

The appeals panel held that the district court erred when it found as a matter of law that the term “inventions” in Bryant’s employment agreement covered ideas such as the Bratz concept. The Ninth Circuit reasoned that the trust would only be appropriate if Bryant had actually assigned his ideas for the BRATZ line and the JADE doll specifically. Reviewing the employment agreement de novo, the court held that the term “inventions” as defined in the contract was focused on concrete innovations and may not extend to ideas. The Ninth Circuit thus held that, while the agreement “could be interpreted to cover ideas,” the “text does not compel that reading,” and remanded the issue, instructing the lower court to allow extrinsic evidence regarding the meaning of the term “inventions” for consideration by a jury.

Next, the Ninth Circuit found that the “very broad” constructive trust the district court imposed must be vacated regardless of whether Bryant’s employment agreement assigned his ideas to Mattel. The constructive trust imposed by the district court included not only the BRATZ and JADE trademarks, but all BRATZ-formative marks. The trust prohibited MGA from marketing any BRATZ-branded products, including dolls, doll accessories, video games, and the BRATZ movie. This wholesale transfer of the BRATZ trademark portfolio to Mattel was inappropriate because it failed to recognize MGA’s own investment in the line, including substantial product development and marketing efforts. The court found that “[a]s a result, Mattel acquired the fruit of MGA’s hard work, and not just the appreciation in value of the ideas Mattel claims it owns.” Accordingly, the Ninth Circuit found that the imposition of the constructive trust was an abuse of discretion and vacated the entire trust.

As for ownership of the copyrights, the Ninth Circuit agreed with the lower court that the preliminary drawings and rudimentary doll model produced by Bryant while he worked for Mattel were “inventions” pursuant to the employment agreement, but disagreed that the agreement extended, as a matter of law, to projects not directly within Bryant’s scope of duties, as required by the Copyright Act. The panel overturned the district court’s summary-judgment holding that the employment agreement assigned the copyright in the works to Mattel. In vacating that holding, the Ninth Circuit noted that the issues of “(1) whether Bryant’s agreement assigned works created outside the scope of his employment at Mattel, and (2) whether Bryant’s creation of the Bratz sketches and sculpt was outside the scope of his employment” should have been submitted to the jury. Because this holding cast doubt on the ownership of the copyrights to the initial drawings and rudimentary doll, the panel also vacated the copyright injunction and related damages award.

Finally, recognizing that, on remand, a jury may once again find that the copyright in the initial sketches and rudimentary doll vest with Mattel, the Ninth Circuit offered the district court guidance regarding the scope of protection offered by the initial sketches and rudimentary doll when compared to MGA’s subsequent BRATZ dolls. Specifically, the panel held that these copyrights would cover only the “particular expression of the bratty-doll idea, not the idea itself.” After detailing the test for copyright infringement in the Ninth Circuit, the court evaluated the preliminary doll created by Bryant and held that, given the narrow range of available expression for fashion dolls, Mattel would be entitled to “thin” protection against only virtually identical copying. Considering the sketches and complete dolls, the court recognized that there was a wide range of available expression, including choices in proportions, colors, clothing, and hair style. However, the Ninth Circuit nonetheless criticized the district court, holding that it failed to undertake an appropriate analysis regarding whether the works were substantially similar. In particular, the district court did not first filter out all of the unprotectable elements and erred in finding that the overall “look at attitude” is protectable. The district court’s impermissible reliance on similarities in ideas led it to hold, erroneously, that the later-generation Bratz dolls infringed the initial sketches.

CONCLUSION

The Ninth Circuit’s rejection of the district court’s analysis of Bryant’s employment contract shows the need to ensure that such contracts are tailored to cover the full scope of an employer’s expectations regarding an employee’s work product. Here, the failure to include the term “ideas” and to specify that all ideas for toys are works made for hire and belong to the toy-company employer, led to contractual ambiguity, which MGA exploited. The decision also establishes the importance of “sweat equity” and being able to demonstrate that talent and other contributions resulted in the subsequent success of a product. Finally, the opinion details the difference between protectable expression and unprotectable ideas, likely to be cited in cases where there are copycat goods at issue.