Saturday, May 24, 2008

The Wall Street Journal Home Page

Brawl Over Doll Is Heading to Trial

Mattel Alleges Skulduggery
In Claim to Rival's Bratz Design
May 23, 2008; Page A1

LOS ANGELES -- Four years ago, Mattel Inc. exhorted its executives to help save Barbie from a new doll clique called the Bratz.

WSJ's Nicholas Casey reports that in a lawsuit, Mattel Inc. has accused Bratz makers MGA Entertainment Inc. of essentially stealing the idea for the pouty-lipped dolls. The legal showdown has major ramifications for both companies. (May 23)

"The House is on Fire!" said an internal presentation on the decline of its iconic Barbie doll franchise. Market share was dropping at a "chilling rate," the presentation said. Barbie needed to be more "aggressive, revolutionary, and ruthless."

That call to arms has led to a federal courthouse. In a lawsuit set for trial on Tuesday in Riverside, Calif., Mattel accuses MGA Entertainment Inc., the maker of Bratz, of essentially stealing the idea for the pouty-lipped dolls with the big heads. Mattel is trying to seize ownership of the Bratz line, which analysts estimate racks up annual sales of more than $500 million. MGA denies wrongdoing, and accuses Mattel in a separate suit of copying Bratz.

On Monday, the former Mattel designer who sold the Bratz concept to MGA, who was also a defendant in the lawsuit, agreed to a confidential settlement with his former employer. Mattel had accused the designer, Carter Bryant, of dreaming up the hit doll while on Mattel's payroll. Mattel didn't disclose the terms of the settlement, but said the agreement will bolster its case; MGA says its position isn't undermined. Mr. Bryant declined to comment.

[See photo]
The companies
Click to see a larger image.

The Bratz-Barbie brawl has major ramifications for both companies. The Bratz line, which hit stores in 2001 and swiftly became the industry's hottest doll, accounts for about half of revenues at closely held MGA. It has become a major threat to the Barbie franchise, which produces annual world-wide sales estimated at about $1.25 billion. Mattel has been telling investors it's working to solve Barbie's problems, but sales of the Barbie line declined 12% in the U.S. in the first quarter as competitors chewed away at its market share.

[Carter Bryant]

Recently released court records reveal just how nasty the multiyear fight has become. Rattled by the success of Bratz, Mattel hired private investigators to spy on one of its own executives whom it suspected of leaking secrets. And MGA, possibly fearing the kind of litigation it now faces, tried to keep quiet Mr. Bryant's role in creating Bratz, internal emails show.

A three-way legal fight between Barbie maker Mattel Inc., MGA Entertainment Inc. -- the maker of a doll clique called the Bratz -- and Carter Bryant, the former Mattel designer who sold the Bratz concept to MGA, is close to an end. See some of the key dates in the case.
1998: After leaving a job at Mattel, Mr. Bryant moves back to his parents' home near Springfield, Mo., where he says he has a eureka moment involving the fashions and hair styles of teenagers at the local high school.
1999: Mr. Bryant returns to Los Angeles and signs a new contract with Mattel to design clothes for the Barbie lines.
September 2000: Mr. Bryant takes a vacation day from Mattel to discuss the doll idea with MGA. Talks continue for weeks.
October 2000: Mr. Bryant jumps ship to MGA and the Bratz project shifts into gear. Mr. Bryant begins shaping what would become the doll line's edgy style.
2001: The Bratz line hits stores.
August 2002: Mattel Chief Executive Robert Eckert receives an anonymous letter saying Mr. Bryant had created Bratz while at Mattel.
2004: Mattel hires private investigators to spy on one of its own executives who it suspected of leaking secrets. Later the same year, Mattel files a lawsuit against Mr. Bryant, accusing him of dreaming up the hit doll while on Mattel's payroll.
2005: MGA countersues, claiming Mattel altered the design of its own dolls to more closely resemble the Bratz line and used its sway with retailers to stifle competition.
2006: Mattel expands its lawsuit to include MGA and its CEO, Isaac Larian.
May 19, 2008: Mr. Bryant agrees to a confidential settlement with Mattel.
May 29, 2008: Hearings are set to begin in Riverside, Calif., in the lawsuit in which Mattel accuses MGA of stealing the Bratz idea.
Sources: WSJ reporting, Associated Press, Reuters

The dispute hinges in part on when Mr. Bryant first came up with the idea for the Bratz dolls and sketched it in his notebook. Mr. Bryant has said that he wasn't working for Mattel at the time. Mattel has hired forensic experts to test his notebook in an effort to undermine his story, court records indicate. MGA, for its part, has argued in court that too much time has elapsed for Mattel to even bring such an intellectual-property claim.

Mr. Bryant, now 39 years old, designed clothes for Mattel dolls until 1998. He then left the company and moved back to his parents' home near Springfield, Mo., to take a break from Los Angeles life, according to sworn statements by Mr. Bryant and his parents. Driving past Springfield's Kickapoo High School, he said in a deposition, he had a eureka moment involving fashions and hairstyles.

'Big, Baggy Jeans'

The local teenagers, he said, "were wearing kind of, you know, oversized clothes, big, baggy jeans...just got me to kind of thinking, you know, wouldn't it be cool if there were some characters that kind of accurately represented today's teenager." Mr. Bryant said he went back home to sketch an idea: sassy girls with frizzed hair, bare bellies and arms akimbo.

"Meet the Bratz!" reads a note he said he wrote to accompany one of the drawings. The note describes a character named Hallidae who has "got the beat," and "on date night, it's a sassy short dress & totally new 'do." He said he shelved the drawings for a while.

By the following year, 1999, Mr. Bryant returned to the Los Angeles area and signed a new contract with Mattel. He designed clothes for Barbie, including its "collector" lines.

What's New: A long battle over MGA Entertainment's popular Bratz doll is slated for trial on Tuesday.
The Background: Mattel says a designer dreamed up Bratz while on Mattel's payroll, making the idea Mattel's.
What's at Stake: Bratz sales have been estimated at more than $500 million a year.

In his deposition, he said he began thinking about the Bratz again after returning to Mattel, and even had the sketches notarized to make it clear Bratz was his idea. He said he didn't believe Mattel would be interested in the characters, and he didn't show them to his employer.

He did show them to Veronica Marlow, a freelance designer to whom he had first mentioned the idea in a hallway during a fire drill at Mattel, according to Ms. Marlow's deposition. Eventually, he showed her the sketches in his car, in Mattel's parking lot, she recalled. By that summer, she had left Mattel and was doing freelance work for MGA. She offered to introduce Mr. Bryant to the company.

[Isaac Larian]

MGA, which is located in the San Fernando Valley, was founded in 1979 by Isaac Larian. At first, it sold cheap, hand-held videogames. Court documents indicate the company was losing money in 2000.

On Sept. 1, 2000, Mr. Bryant took a day off from Mattel to meet Mr. Larian at his office. Mr. Bryant arrived with a black portfolio containing his Bratz sketches and a small model of the doll wearing a short skirt. It was a rough prototype made of doll parts. Mr. Bryant said in his deposition he had used a doll head from a Mattel waste bin and other parts of his own, and had paid a Mattel colleague to paint it.

Mr. Larian said in his deposition that he expressed concern about Mattel: "I asked him if this was something that he was doing at Mattel...and he said 'No.'" He added: "I didn't want to have a lawsuit." Mr. Bryant told him it was a side project, according to the depositions of both men. About two weeks later, Mr. Larian called the designer at home and said he was interested in the project, the two men said.

In the weeks that followed, Mr. Bryant continued to discuss the doll idea with MGA. Many of the calls took place from his desk at Mattel, according to phone records and his deposition. He continued to work for Mattel even after Mr. Larian asked him to quit, according to both men's depositions. In October 2000, when he finally gave notice to Mattel that he was leaving, he refused to say where he was going.

He joined forces with MGA, and the Bratz project shifted into gear. Mr. Bryant began shaping what would become the doll line's edgy style. He had already made research trips to Toys "R" Us to examine toys, and to Hot Topic, a goth-rock clothing store, where he bought things like thongs, string bikinis and metal belts. "This is going to be big!" he wrote to Mr. Larian.

When the doll landed on store shelves in 2001, it generated buzz in the media, on Wall Street, and most importantly, among young girls. Sales took off, yielding a bonanza for Mr. Bryant, who received a royalty of 3% of sales on the Bratz lines he worked on. Mattel later claimed that he received more than $30 million from the agreement.

[Popularity Contest]

In August 2002, Mattel Chief Executive Robert Eckert received an anonymous letter. "Dear CEO," the letter began. "I have information that I think Mattel should investigate." The letter went on to say Mr. Bryant had created Bratz while at Mattel -- alleging that he had "worked out a deal with MGA that let him collect a large sum of money each year from MGA in exchange for his secrecy."

There is some evidence that MGA was concerned that if Mr. Bryant's involvement became known, it might bring trouble from Mattel. In a March 2002 email that is in the court record, Mr. Larian scolded employees over information about Mr. Bryant's involvement that was given to an online Bratz fan group, referring to possible "legal grief." "There must be no mention about Mattel or any of their properties, Carter [Bryant], any MGA Bratz arts, etc," he wrote.

In a March 2004 article in the San Fernando Valley Business Journal, Mr. Larian was quoted saying his teenage son was the inventor: "It was Jason's idea for Bratz." In a later deposition, Mr. Larian said he was misquoted. The article's author said in his own deposition that he couldn't remember the interview in detail, but that Mr. Larian hadn't complained after the article ran.

By 2004, the Bratz line was notching steady sales with "tweenage" girls between 8 and 12 years old, and its appeal was spreading to children as young as 5, Barbie's prime territory. Mattel had tried to update its doll lines by introducing urban-chic dolls under the names "My Scene" and "Flavas."

'Call to Action'

In a 2004 email under the heading "Confidential: The Barbie Call to Action," Timothy Kilpin, head of Mattel's girls division, lamented that Mattel had "been out-thought and out-executed." He expressed surprise that shelf space for Bratz at Wal-Mart had increased 180%, while Barbie's had declined 39%. Visits to important retailers, the email said, had shown that "the Barbie business is in serious decline." Fixing it would require "grenades" to be launched, he wrote. "Complacency will kill us."

"The House is on Fire!" became a catch phrase in internal presentations in 2004, often accompanied by a logo of a burning house.


Mattel began to investigate its rival. An undated internal Mattel file, which turned up in pretrial discovery, contains detailed information on Mr. Larian's personal life, including the ages of his children and his mother's home address. The file noted Mr. Larian's penchant for writing poetry, and included the name of his family's Jewish temple. One document concluded that Mr. Larian "believes he is all knowing and all powerful" and "becomes enraged if told 'NO.'" Mr. Larian has said the dossier is "far from the truth."

The pretrial discovery also revealed that Mattel had investigated one of its own executives. A confidential memo to Richard de Anda, Mattel's head of internal security, included a surveillance log from a private detective sent to the home of Ronald Brawer, a Mattel vice president and general manager who later left to work for MGA. Investigators watched Mr. Brawer's home in Manhattan Beach and followed his car as he ran errands. The report indicates the investigators videotaped Mr. Brawer's child on occasion. Mattel eventually sued Mr. Brawer, alleging he sought to pass company secrets to MGA. After that lawsuit was dismissed, Mattel appealed, and the two parties settled the case in 2006.

In a subsequent deposition, Mr. Brawer mentioned that prior to his departure, one strategy Mattel considered in "trying to defeat Bratz was to litigate them to death."

Unnamed 'Competitor'

In April 2004, Mattel sued Mr. Bryant for his involvement with an unnamed "competitor" that allegedly received Mattel intellectual property. In 2005, MGA filed a complaint against Mattel, claiming its updated Barbie line borrowed from Bratz. That case is set to go to trial this fall. In November 2006, Mattel added MGA and Mr. Larian as defendants in its lawsuit against Mr. Bryant.

MGA's lawyers have argued that Mattel didn't file its claims against MGA within the three-year statute of limitations for such actions. MGA contends that clock started ticking no later than 2002 with the anonymous letter to Mr. Eckert about Mr. Bryant's role in creating Bratz. Mattel likely knew about Mr. Bryant's involvement "as early as the day he quit," says Thomas Nolan, a lawyer for MGA.

Mattel says it was unaware of Mr. Bryant's precise involvement in the birth of the Bratz until a 2003 Wall Street Journal story mentioned his connection. The company says the anonymous letter was insufficient to establish Mr. Bryant's role.

The case may come down to an analysis of Mr. Bryant's first Bratz drawings.

At trial, Mattel is expected to raise questions about Mr. Bryant's account of how he began doing the early Bratz sketches after seeing the Missouri high-school teens, between his two stints at Mattel.

Mr. Bryant said he tore the sketches out of a notebook in 1998 before he returned to Mattel. Mattel says its forensic experts will argue that an analysis of paper fiber shows that those pages are similar to pages from a 1999 notebook Mr. Bryant used for Mattel projects. Mattel's lawyers say trace ink appears to have bled into the final pages of the 1999 notebook -- and the ink matches the shape of Mr. Bryant's earliest Bratz sketches.

MGA says its witnesses will substantiate Mr. Bryant's claim that he drew the pictures in 1998. Mr. Bryant himself is expected to take the stand.