RIVERSIDE, California Mattel Inc MAT.N won a nearly complete victory on Thursday in its federal copyright infringement case against rival MGA Entertainment Inc over which toymaker owns the original drawings for the $1 billion-plus Bratz fashion doll franchise.
The decision by a California jury could have far-reaching implications for both companies as well as the toy industry if Mattel wins the large damages award it is seeking as well as an injunction to stop MGA from selling Bratz dolls, the main rival to its Barbie doll franchise.
The federal jury found the creator of the multi-ethnic, big-headed dolls, Carter Bryant, created their characters and the name while he was under contract as a Barbie designer at Mattel.
Mattel shares gained 4.4 percent in after-hours trade following the verdict.
Mattel Chairman and Chief Executive Bob Eckert, who testified at the trial, said it had pursued the case "as a matter of principle" and that the verdict was "a victory not only for Mattel but for all those who believe in fair play."
"While the case has been very complicated, the underlying principle has been a simple one: you shouldn't take what isn't yours," Eckert said in a statement.
The decision put Mattel in commanding position going into the damages phase of the trial, in which the jury will determine if the Bratz doll infringes on the drawings Mattel now owns and whether MGA owes Mattel damages as a result. That phase begins July 23.
Other than the four drawings which Bryant testified that he made in a notebook while on an eight-month hiatus from Mattel in 1998, privately held MGA lost the rights to all drawings and "sculpts" of the Bratz.
While the verdict is a blow for MGA, it can claim in the damages phase that Mattel has no rights to the dolls themselves because they are different from the drawings and were made by MGA designers.
"The real issues will be fleshed out in (the damages phase)," MGA attorney Thomas Nolan said outside the courtroom. "We have always taken the strong position that Bratz dolls do not infringe on Carter Bryant's drawings ... that substantial changes were made to the dolls to make them marketable."
The jury also found that MGA Chief Executive Isaac Larian had interfered with Mattel's contractual relationship with Bryant and that both he and his company were liable for "conversion," the term used for industrial theft.
Larian, who attended court every day of the seven-week trial, said outside court that he was confident his company "will prevail in the end," and added that he was considering appealing the jury's verdict.
"Frankly, I was disappointed because I think Mattel's lawyers did everything they could to confuse this jury," Larian said.
Mattel's attorney John Quinn said on a conference call with reporters that the damages for copyright infringement would be based on MGA's profits from Bratz and any related products, which some estimates pegged at $500 million a year.
"We assume the evidence is going to be that the damages here are very, very substantial," Quinn said. "It's no secret that Bratz has been a very successful product."
Quinn would not comment on whether MGA and Mattel are engaged in settlement talks.
The verdict could be the start of a reversal of fortune for MGA, which grew Bratz from the drawings to a multibillion-dollar franchise in seven years as Mattel watched market share for its venerable Barbie line melt away.
Barbie's sales troubles have extended into the first quarter of 2008 -- domestic sales fell 12 percent, while worldwide sales were flat with the earlier year.
The pouty-lipped Bratz, on the other hand, have been such a hit that MGA is launching a new Bratz line in August, which Larian expected to rake in retail sales of up to $200 million by the end of the year.
"The value of the (Bratz) brand and the value of Mattel's ownership stake have to be assessed," said Chris Byrne, an independent toy industry analyst. "I think it is going to have an effect on MGA, moving forward, and on what they do."
(With additional reporting by Aarthi Sivaraman in New York)