An appeals court on Thursday ruled that Mattel Inc. was wrongly awarded ownership of the Bratz line.

The Ninth U.S. Circuit Court of Appeals ruling is a major turnaround for MGA Entertainment Inc. in its long running battle with rival Mattel Inc. over the fashion doll line, and could result in a new trial.

In the unanimous decision written by Chief Judge Alex Kosinki, the appellate court said that “a significant portion – if not all – of the 2008 jury verdict and damage award should be vacated, and the entire case will probably need to retired.”

The appeals court said the initial ruling over-reached. While Carter Bryant did develop the basic concept for Bratz while still working for Mattel, the judge in the case, now retired U.S. District Court Judge Stephen Larson, erred in deciding that Bryant’s employment agreement “clearly covered ideas.”

“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 appeals court said.

MGA cheered the decision, saying in a statement that it was “deeply grateful to the court for confirming, in the words of founder Isaac Larian, ‘that the American dream lives.’ “

The ruling reverses a federal judge’s injunction that prevented Van Nuys-based MGA from making or marketing the popular Bratz dolls, which became a hit among “tween” girls and stole market share from Mattel’s Barbie after debuting in 2002.

In a 2008 ruling, Larson, who has since gone into private practice, assigned ownership of the Bratz dolls to Mattel after a federal jury in Riverside granted Mattel control of the line and $100 million in damages.

“We look forward to a full trial on all of Mattel’s claims against MGA,” Mattel said in a statement. “We believe that such a trial will present a comprehensive and even more compelling case for Mattel than was possible with a divided trial. We have great confidence in the judicial system and the ability of a jury to right the wrongs that Mattel has suffered.”

The appeals court ruling should enable MGA to resume manufacturing Bratz dolls.

Mattel already had begun manufacturing its own line of Bratz dolls. Mattel Chief Executive Bob Eckert called it “a great line of dolls” in a January conference call with analysts. But the El Segundo company eventually put the line on hold pending the appeal.