Bratz Lawsuit Lessons: Protect IP Your Employees Create

The Bratz lawsuit was a long fight between Mattel and MGA Entertainment over who owned the Bratz dolls. The dolls were created by Carter Bryant, a designer who came up with the idea while employed by Mattel. Mattel won big at the first trial. Then the federal appeals court sent the case back, because Bryant’s employment agreement was ambiguous about whether it covered ideas and off-hours work. MGA won the retrial. The lesson for any business is plain: if your IP agreement is vague, a court may not read it your way.

Most companies will never fight over a billion-dollar toy line. However, almost every company has employees and contractors who create things. At AEGIS Law, we draft invention assignment and confidentiality agreements, and we litigate disputes when those agreements fail. This article walks through what happened in the Bratz lawsuit, why the agreement didn’t hold, and how to make sure yours does.

What happened in the Bratz lawsuit?

Bryant worked as a designer on Mattel’s Barbie line. While there, he developed sketches and a concept for a new line of dolls with a bolder, more modern look. He pitched the concept to MGA, a Mattel rival, and MGA turned it into Bratz. The dolls became a major hit and a real threat to Barbie’s market share.

Mattel sued Bryant and MGA. Its theory was simple. Bryant had signed an agreement giving Mattel the rights to his inventions, so Mattel said it owned Bratz from the start. Bryant settled. The case against MGA went to trial, and Mattel won. The district court then imposed a constructive trust that effectively transferred the Bratz trademarks to Mattel. It also issued an injunction that barred MGA from making or marketing nearly every Bratz doll.

That looked like the end. It wasn’t. MGA appealed, and the case turned on a few words in a contract Bryant had signed years earlier.

Why did the appeals court rule the employment agreement was ambiguous?

Bryant’s 1999 agreement required him to disclose and assign “inventions” that he “conceived or reduced to practice” “at any time during my employment by the Company.” On July 22, 2010, the U.S. Court of Appeals for the Ninth Circuit held that the trial court should not have decided what that language meant on its own. The opinion, written by Chief Judge Alex Kozinski and later amended, is available from the court.

The court found two problems. First, it wasn’t clear that “inventions” included ideas. Designs and formulas are concrete. Ideas, the court said, are “ephemeral.” Second, “at any time during my employment” could mean any time while Bryant was employed, including nights and weekends. Or it could mean only time spent on the job. Because both readings were reasonable, a jury should decide. The court also vacated the constructive trust as too broad. Handing MGA’s later work on the brand to Mattel went too far.

The court added a pointed line about copyright. “Mattel can’t claim a monopoly over fashion dolls with a bratty look or attitude.” In other words, even owning Bryant’s original sketches would not give Mattel rights over every doll that shared a general style. Protection covers expression, not a concept.

How did the Bratz lawsuit finally end?

At the retrial, the jury found for MGA. It also sided with MGA on a counterclaim accusing Mattel of misusing MGA’s trade secrets. The jury awarded MGA more than $80 million. The district court added an equal amount in exemplary damages, plus attorneys’ fees. In addition, MGA was awarded its fees under the Copyright Act as the prevailing party.

Mattel appealed again. On January 24, 2013, the Ninth Circuit vacated the trade secret award, roughly $172 million in damages. The court ruled that MGA’s counterclaim was not tied closely enough to Mattel’s claims to be brought in the same case. It ordered the claim dismissed. However, the court left in place MGA’s copyright fee award. After about a decade of litigation, neither side got the clean win it wanted.

The bigger cost was the delay. Years of uncertainty hung over a valuable product line. Both companies spent heavily on lawyers, and executives spent time on the case instead of the business. As a result, the case is still a standard example in employment and IP law of how a weak agreement can turn into a very expensive fight.

How can your business protect what employees create?

Start with the definition. An assignment clause should cover ideas, concepts, designs, sketches, code, and know-how, not just “inventions.” It should say whether it reaches work done outside office hours. It should also cover work related to the company’s business or made with company resources. Then keep the scope honest. Illinois and California both limit how far an employer can claim inventions an employee makes on their own time without company resources. Overreaching can make a clause harder to enforce. For more detail, see our guide to invention assignment agreements.

Next, use one agreement across the company. The Mattel litigation showed how variations between employee agreements can hurt you. Use present-tense assignment language, such as “I hereby assign,” and require prompt disclosure of new work. Have contractors sign their own assignment, because a contractor usually owns their work unless a written agreement says otherwise.

Finally, support the paper with practice. Explain the agreement when people sign it. Remind departing employees of their duties in an exit interview, and collect company files and devices. Pair the IP clause with trade secret protections, because many disputes involve both. For that side, see trade secrets protection. Strong drafting is the cheapest way to avoid your own version of the Bratz lawsuit.

If your agreements are already signed, audit them. Pull the forms your team actually signed, not just the current template. Look for gaps between versions, missing signatures, and contractors who never signed anything. Check whether key people signed before or after they started creating the work that matters most. Where you find gaps, a confirmatory assignment can often fix the problem, especially before a financing or sale. Buyers and investors look for these gaps in due diligence, and a clean chain of title can protect the price.

Frequently asked questions

Does my company own everything an employee creates?

Not automatically. Copyright in work made within the scope of employment usually belongs to the employer. Inventions and work outside the job often need a written assignment, and state law may limit what that assignment can reach.

Can an employer own an employee’s ideas?

Possibly, if the agreement clearly says so and state law allows it. The Ninth Circuit found that “inventions” did not plainly include ideas in Bryant’s agreement. Clear wording matters.

What should we do if a departing employee takes an idea to a competitor?

Act quickly. Preserve evidence, review the employee’s agreements, and send a demand letter if the facts support it. Court relief, such as an injunction, is more likely when you move fast.

Talk with AEGIS Law

The Bratz case started with a contract, and most IP disputes do. AEGIS Law drafts employee and contractor agreements that hold up, and we represent companies when ownership of IP is challenged. Contact AEGIS Law to review your agreements before you need them.

By AEGIS Law