Via the WSJ Law Blog, the Ninth Circuit, in a significant published opinion with ramifications for copyright litigators, vacated the $10 million verdict — and, more importantly, the constructive trust and injunction — that Mattel won against MGA.
Unusually, the panel summed up its own findings at the end:
[Carter] Bryant’s employment agreement may not have assigned his ideas for the names “Bratz” and “Jade” to Mattel at all, and the district court erred by holding that it did so unambiguously. Even if Bryant did assign his ideas, the district court abused its discretion in transferring the entire Bratz trademark portfolio to Mattel. We therefore vacate the constructive trust, UCL injunction and declaratory judgment concerning Mattel’s rights to the Bratz trademarks. The district court may impose a narrower constructive trust on remand only if there’s a proper determination that Mattel owns Bryant’s ideas.
The district court also erred in holding, at summary judgment, that the employment agreement assigned works created outside the scope of Bryant’s employment. We therefore vacate the copyright injunction. On remand, Mattel will have to convince a jury that the agreement assigned Bryant’s preliminary sketches and sculpt, either because the agreement assigns works made outside the scope of employment or because these works weren’t made outside of Bryant’s employment. And, in order to justify a copyright injunction, Mattel will have to show that the Bratz sculpts are virtually identical to Bryant’s preliminary sculpt, or that the Bratz dolls are substantially similar to Bryant’s sketches disregarding similarities in unprotectable ideas.
There’s no two ways to slice it: the opinion is a major loss for Mattel. Even if they win on remand and retrial, they’ve lost their biggest weapons.
Sure, Mattel gets another crack at showing misappropriation by Bryant and MGA, and it has decent odds of proving “the agreement assigned Bryant’s preliminary sketches and sculpt, either because the agreement assigns works made outside the scope of employment or because these works weren’t made outside of Bryant’s employment.” There was certainly evidence at trial supporting that.
But where will that get them? As I wrote back when the verdict came out, “The jury essentially found that MGA was entitled to 95% of the Bratz empire’s profits,” despite finding extensive wrongful conduct by Bryant and MGA.
The problem for Mattel is that, even they succeed the next time around, the Ninth Circuit has obliterated their two most powerful remedies: the constructive trust over the Bratz profits and the injunction prohibiting MGA from producing more Bratz dolls. The Bratz empire has earned over $1 billion in profits; a $10 million award — even a $100 million award — has only a fraction of the value to Mattel as a constructive trust or an injunction, both of which would cripple MGA and award the Bratz empire to Mattel.
Back when the verdict came out, I thought the sort of windfall proposed by Mattel bothered the jury:
Recall that excellent Learned Hand quote unearthed by the Eleventh Circuit (and discussed in my post on the Watchmen lawsuit:
It must be obvious to every one familiar with equitable principles that it is inequitable for the owner of a copyright, with full notice of an intended infringement, to stand inactive while the proposed infringer spends large sums of money in its exploitation, and to intervene only when his speculation has proved a success. Delay under such circumstances allows the owner to speculate without risk with the other’s money; he cannot possibly lose, and he may win.
I don’t believe the Bratz trial addressed laches and the suit was somewhat timely filed from what I can tell, perhaps two years after the infringement was discovered. I doubt any of the jurors were familiar with Learned Hand, but the core idea is well-accepted in America: expanding upon others’ ideas is a legitimate enterprize.
It seems the Ninth Circuit took a similar view:
“When the defendant profits from the wrong, it is necessary to identify the profits and to recapture them without capturing the fruits of the defendant’s own labors or legitimate efforts.” Dan B. Dobbs, Dobbs Law of Remedies: Damages-Equity-Restitution § 6.6(3) (2d ed. 1993). This is because “the aim of restitution has been to avoid taking the defendant’s blood along with the pound of flesh.” Id. § 6.6(3) n.4. A constructive trust is therefore “not appropriate to every case because it can overdo the job.” Id. § 4.3(2).
When the value of the property held in trust increases significantly because of a defendant’s efforts, a constructive trust that passes on the profit of the defendant’s labor to the plaintiff usually goes too far. For example, “[i]f an artist acquired paints by fraud and used them in producing a valuable portrait we would not suggest that the defrauded party would be entitled to the portrait, or to the proceeds of its sale.” Janigan, 344 F.2d at 787. Even assuming that MGA took some ideas wrongfully, it added tremendous value by turning the ideas into products and, eventually, a popular and highly profitable brand. The value added by MGA’s hard work and creativity dwarfs the value of the original ideas Bryant brought with him, even recognizing the significance of those ideas. We infer that the jury made much the same judgment when it awarded Mattel only a small fraction of the more than $1 billion in interest-adjusted profit MGA made from the brand.
The whole opinion is worth reading for anyone with copyright infringement cases claiming a constructive trust or seeking an injunction for misappropriated work.
Of course, with all of these children’s and adolescent toys afoot, Judge Kozinski couldn’t resist dropping in a Twilight reference:
Assuming that Mattel owns Bryant’s preliminary drawings and sculpt, its copyrights in the works would cover only its particular expression of the bratty-doll idea, not the idea itself. See Herbert Rosenthal Jewelry Corp. v. Kalpakian, 446 F.2d 738, 742 (9th Cir. 1971). Otherwise, the first person to express any idea would have a monopoly over it. Degas can’t prohibit other artists from painting ballerinas, and Charlaine Harris can’t stop Stephenie Meyer from publishing Twilight just because Sookie came first. Similarly, MGA was free to look at Bryant’s sketches and say, “Good idea! We want to create bratty dolls too.”
As the opinion concludes,
America thrives on competition; Barbie, the all-American girl, will too.
She’ll need to after this opinion.