Even Bratz victory has a price for Mattel

NEW YORK (Reuters) - Mattel Inc seems poised to win a chunk of damages from MGA Entertainment over the Bratz brand, but may pay a price for victory if it gets control of the edgy dolls and sells them as well as its classic Barbie.

Jury deliberations began this week on Mattel's demand that MGA forfeit nearly $2 billion in profits from the Bratz dolls, plus damages, with a verdict possible as early as Friday.

Last month, a jury awarded Mattel rights to all but four of the drawings and models from a former employee that were used to create the best-selling Bratz dolls.

Mattel could win the rights to the dolls once the jury decides, but that could deeply complicate its efforts to boost the Barbie brand, soon marking its 50th year on store shelves.

"Mattel seems clean-cut, all-American, and non-controversial," said Wedbush Morgan Securities analyst Chris White. He referred to Bratz, considered provocative by some parents for their oversized heads, lips and eyes, as an "anti-Barbie."

"I don't know if Bratz fits in with the way they (Mattel) perceive themselves, even if Bratz is successful financially," he said. "Money is not everything."

One possible outcome is that Mattel wins rights to the dolls but MGA retains the Bratz name.

That could be a "lose-lose" situation, unless the two companies seal some sort of a deal to sell the Bratz dolls and split the proceeds, said Stephen Smith, an entertainment and intellectual property lawyer with Greenberg Glusker.

"I think it's more likely ... that they will strike a deal. They will both make a ton of money, but MGA will make much, much less money than it would have otherwise," said Smith, who has worked on two other unrelated cases against MGA.

"What they will do is just put some distance between them," he said. "If they had to, they could create a subsidiary that is not even called Mattel to market and sell Bratz."

MATTEL'S BRATZ TEMPTATION

The entire toy industry has kept close tabs on the case, which will determine the future of the popular doll franchise, whose annual sales top $1 billion, according to MGA.

Mattel won a near-total victory in the first phase, gaining rights to all but four Bratz drawings, which it alleged were done by designer Carter Bryant while he was still under contract to the world's largest toy company.

Shares of Mattel are up nearly 5 percent since its early court win in late May.

The Bratz line has weakened Barbie's foothold in the doll market ever since its 2001 launch. Annual Bratz sales are equivalent to about a sixth of Mattel's 2007 revenue of nearly $6 billion.

"I'm sure Mattel has a lot of emotional attachment to Barbie," said Fred Hathaway, a trademark litigation lawyer with Buchanan Ingersoll Rooney. "They would want Barbie at 100 percent. If Bratz eats into Barbie (by) even 1 percent, it is intolerable for them."

But with its ownership of the Bratz drawings and dolls, Mattel could court further injury to Barbie.

"They need to really guard the brand very, very carefully, and need to be very careful that parents don't perceive their line of dolls as too edgy," said Gene Grabowski, a senior vice president at Washington, D.C.-based Levick Strategic Communications, working on brand-related and litigation issues.

The temptation is that a deal with MGA could give Mattel a handy sum of income at a time when it is struggling to lift Barbie sales, which have suffered for some time. Worldwide Barbie sales fell 6 percent in the second quarter, and slid 21 percent in the United States.

But MGA Chief Executive Isaac Larian may very well resist a deal. Larian has said in the past he may even consider selling MGA at the right price -- but not to Mattel.

Some experts say El Segundo, California-based Mattel would just be happy to collect damages from MGA and see the Bratz line fade away.

"If Mattel only gets one dollar and the Bratz dolls are discontinued, then Mattel wins," Grabowski said. "The money is more a way to send a message than anything else. Stopping Bratz is what this is about."

(Editing by Braden Reddall)