The long, odd feud over the Bratz line of dolls has taken another strange turn. Both Mattel Inc. and MGA Entertainment Inc. are now manufacturing the dolls, but neither company knows for sure which will own the line in the future.
That situation, in turn, is causing what one observer called “total chaos in the marketplace.” Retailers are unsure if either company can live up to any contract to deliver the doll in the future. And some in the toy industry wonder if either company can be truly committed to the line since its ownership is up in the air.
This latest twist came after it appeared that L.A.’s years-long doll brawl was coming to an end. A judge earlier ruled that MGA of Van Nuys had developed the doll from intellectual property that rightly belonged to Mattel of El Segundo, and he ordered that Mattel take over the manufacture and sale of the doll after this Christmas season.
So as part of the handoff, Mattel recently started up the manufacture of its Bratz dolls while MGA appeared to near the end of its run.
But the Ninth Circuit Court of Appeals essentially stopped the process. The court ruled Dec. 9 that MGA can continue to sell the pouty-lipped Bratz that are currently in the marketplace until the court makes a final decision in the case.
The ruling came as a victory for toymaker MGA. For one thing, the company is relieved of its obligation to buy back and destroy any remaining Bratz dolls in the market; MGA had estimated it would have to spend $10 million to $20 million to do that.
But perhaps more importantly, the court indicated that it doesn’t look favorably on the original decision. The appellate judges said that the order transferring ownership of the Bratz trademark and copyright from MGA to Mattel was “drastic,” and questioned why Mattel wasn’t simply given a royalty or ownership stake in MGA’s Bratz franchise. The appellate judges also ordered Mattel and MGA to mediation. In other words, the two companies should try to sort it out themselves.
So now, both companies are in a kind of limbo. Mattel, relying on the previous court ruling, is ready to launch its own Bratz line.
MGA, now confident in its appeal, is preparing next season’s Bratz dolls, according to an analyst with contacts at the company who spoke on condition of anonymity.
Mattel has even previewed its Bratz line for retailers.
A Mattel spokeswoman confirmed that the company has shown its Bratz line to retailers, but declined to provide details. Mattel Chief Executive Robert Eckert said in an October conference call with analysts that “the dolls look terrific. … We’re confident that the new line of dolls will really resonate with girls, and we’re quite excited about the prospect of launching them.”
Meanwhile, MGA has been developing its own new Bratz line, according to the Business Journal’s source, in the event that the federal appeals court reverses the previous decisions.
An MGA spokeswoman did not comment. However, MGA Chief Executive Isaac Larian said in April that the company would go forward with a line of Bratz dolls for spring.
Toy industry insiders who have been following the litigation said the appellate judges’ ruling, and their critical questioning of the earlier ruling, puts Mattel and MGA in an extraordinary predicament.
“How much money do you invest in a line if you don’t know whether you are going to have it nine months from now?” asked Jim Silver, editor of online toy industry publication TimetoPlayMag.com. “I think this ruling is going to the detriment of the Bratz line no matter how the final ruling comes out. It hurts the Bratz brand because it leaves both companies in limbo.”
What’s more, legal observers said the appellate case has likely generated uncertainty among retailers.
“It does create total chaos in the marketplace because toy buyers don’t even know whose line to buy, they don’t know who to talk to,” said Stephen Smith, a partner in the Century City office of Greenberg Glusker Fields Claman & Machtinger LLP, who is not involved in the case, but is handling a comparable case involving producers of motocross events.
“They become hesitant to make commitments, and if they do, they want the right to terminate the commitment depending on what happens in the litigation,” he said.
Warring words
The setback for Mattel came after a three-judge panel of the appeals court heard oral arguments for the appeal of a 2008 decision by a federal jury in Riverside.
The jury ruled that Bratz was created by toy designer Carter Bryant while he was still working for Mattel, and that he wrongly turned over the designs to MGA. As a result, control of the Bratz line was awarded to Mattel in addition to a $100 million damages award against MGA.
MGA appealed, arguing that several rulings made by then-U.S. District Court Judge Stephen Larson should be overturned, including the assignment of the Bratz ownership to Mattel, an injunction barring MGA from further making Bratz dolls, and an order for the company to remove all Bratz products from store shelves by Jan. 21. MGA claimed Mattel’s employment contract with Bryant was overreaching and therefore invalid.
The federal appeals court issued an order just hours after the Dec. 9 arguments allowing retailers to continue selling MGA’s Bratz products through next year. The court will issue a more detailed order later, which could result in the reversal of Larson’s previous rulings. Larson has since left the bench for private practice, citing the need to make enough money to support his wife and seven children.
The appellate judges not only questioned Larson’s orders, they also expressed concern over a key issue in the case – an employment agreement between the former Mattel doll designer and the toymaker.
Chief Judge Alex Kozinski asked Mattel’s lawyer whether the company’s “inventions agreement” gave it the right to all ideas the former doll designer came up with, including those he thought of while not at work.
“Does it mean while you’re asleep, vacationing in Bermuda, whatever?” asked Kozinski.
Legal experts said the appeals court’s line of questioning gave an indication that the judges want Mattel and MGA to settle the fight with some kind of royalty agreement or other compromise.
“I think the court indicated that it believes both sides have demonstrated some merits to their claims,” said Rex Heinke, an appellate specialist in the Century City office of Akin Gump Strauss Hauer & Feld LLP who is not involved in the case. “But neither side has demonstrated that they are clearly entitled to a complete victory. It appears the court is looking for a way for both sides to get something out of this by ordering them to mediation, and in the meantime stopping an injunction that would have wiped out MGA.”
In the Dec. 9 arguments, MGA’s lawyer told the appellate court that the litigation has “decimated MGA” and that the company was “hobbling right now.”
Although MGA’s main product has been Bratz, the toymaker has been focusing its efforts on two new fashion doll lines, Moxie Girlz and Best Friends Club.
Some believe Moxie Girlz would be MGA’s replacement for Bratz. The new line bears a resemblance to Bratz although with somewhat more modest clothes and less exaggerated facial features. They hit store shelves in August.
Best Friends Club, a line of 18-inch dolls targeted at ’tween girls to compete with Mattel’s American Girl dolls, debuted in September.
MGA has seen success with both doll lines, and according to market research firm NPD Group Inc., Moxie Girlz was the best-selling new fashion doll in the third quarter.
It’s an open question whether MGA would abandon Moxie Girlz if it got Bratz back. Likewise, it’s unclear if MGA would have an incentive to boost Moxie Girlz at the expense of Bratz, especially if it had to pay royalties to its rival on the sales of Bratz.
Meanwhile, Mattel is betting that the popularity of its Fashionista Barbies, which hit store shelves in October, will help Barbie take back the market share she’s lost to challengers such as MGA. The Fashionista dolls are slightly more grownup looking than traditional Barbies, and they can do more than 100 poses, and come with a purse or other fashion accessory.
However the Bratz dispute ends, the dolls’ popularity has faded from the peak of 2005, when they generated more than $1 billion in sales for MGA.
So toy experts said whether it’s Mattel’s or MGA’s new Bratz line that hits store shelves, the dolls have an uphill climb.
“I think any relaunch is going to have to be accompanied by a strong marketing plan in addition to product,” said Hayley Wolff, an analyst with New York-based firm Rochdale Research. “Just because Mattel conceptually gets the rights to Bratz doesn’t necessary mean it’s a home run for them. There is some work that has to be done with revitalizing the brand.”
