Judge "struggling" in Mattel-MGA Bratz ruling

LOS ANGELES (Reuters) - A federal judge who will decide whether Mattel Inc MAT.N or MGA Entertainment has the rights to future revenue from the Bratz doll line expressed serious reservations about his impending ruling, signaling it might hurt both parties equally.

U.S. District Judge Stephen Larson is expected to rule this week on which of the two companies will retain the right to use the Bratz name and make the urban-chic dolls that have carved deeply into market share of Mattel's Barbie doll.

"This is the struggle I have with this case fundamentally: the measurable value of Bratz, the brand Bratz, the doll Bratz, and everything that comes with it, is so much a function of what (MGA Chief Executive) Isaac Larian and his team put into it," Larson said at the hearing.

The judge's conundrum was an indication to both toymakers that his decision was unlikely to satisfy either, an expert said.

"Since the judge has latitude in deciding, he could make both parties pay dearly," said Henry Sneath, an intellectual property attorney.

After mandatory settlement talks between the two CEOs proved fruitless, Mattel filed two motions to prevent MGA from producing or selling the dolls, or using the Bratz name and trademark.

Last summer, a jury awarded Mattel up to $100 million in damages in a copyright infringement trial, but left hazy which company would make the dolls going forward and whether MGA would owe Mattel a royalty on future Bratz profits.

The judge said he respected the jury's finding that Mattel owns the copyright to the Bratz design drawings, but thought that "to return everything of value to its rightful owner is quite a leap."

Experts said this case is unique in that Mattel sued MGA only after the latter had poured in time and resources to turn the Bratz line into a billion-dollar success.

"I don't think there's ever been a case quite like this, because usually in infringement cases, the culprit is caught much earlier," said Stephen Smith, an entertainment and intellectual property lawyer with Greenberg Glusker.

'SPLIT THE BABY'

The loss of Bratz could be devastating to MGA, as the doll line represents a significant part of the family-owned toymaker's revenues.

Larson "most likely" will come up with a compromise that speaks to both companies' positions, experts said.

"There is a distinct possibility that he will split the baby, assigning a perpetual royalty that MGA must pay to Mattel -- a certain percentage of all proceeds from the sale of the dolls," Smith said.

The amount "may be high enough to hurt MGA for its copyright infringement, but not be severe enough to preclude them from benefiting from the brand they built," Smith said.

As the copyright owner, Mattel has the right to restrict the reproduction, public display and creation of derivative works based on the protectable elements in the drawings for 95 years after creation, according to an expert.

"It is up to the judge to determine how much of the Bratz line is related to those drawings and what injunctive relief is appropriate, because the jury did not clearly mention what their intention was," said Jack Lerner, a copyright expert at the University of Southern California's Gould School of Law.

MGA believes, however, that the panel meant to award a one-time penalty of much less than $100 million and to allow it full ownership and profit on future Bratz dolls and gear.

A Mattel spokeswoman declined to comment on the fate of the Bratz line, should the company win the motions.

(Editing by Andre Grenon)