Yes Mattel could have done more to protect its trade secrets. When a particular
ID: 373673 • Letter: Y
Question
Yes Mattel could have done more to protect its trade secrets. When a particular product or new product or line is scrapped, appropriate processes and procedures must exist to counter any risks that may arise due to leaking out of the information on the scrapped product. For e.g. similar to the case, a competitor may pick up the available information and take the product to a successful conclusion. Hence, the new product process must take care to disclose sensitive information to a larger audience only when the status is nearing a productive conclusion else it should be kept confidential so as to be able to flexibly cut the process short in case of any adverse result. Although an agreement with an employer may be necessary and may be a good tool to control and avoid leak of confidential information, it may not be very effective because in the case of an unexpected leak of information, litigation can be more adverse than better to manage the situation. Prevention is hence the best cure and a stringent process and system must exist to manage and control the sensitive and confidential information within a company. Training and leadership practice of code of conduct and work ethics can also be quite useful in encouraging employees to honor these principles and will motivate them to follow these.
Explanation / Answer
3100- Paper assignment #4 (unit 9)
Case 9.10 Mattel And The Bratz Doll; and
Bryant assigned to Mattel all rights, title, and interest in the “inventions” he conceived of, or reduced to practice, during his employment. Bryant also completed Mattel’s Conflict of Interest Questionnaire and certified that he had not worked for any of Mattel’s competitors in the prior twelve months and had not engaged in any business dealings creating a conflict of interest. Bryant agreed to notify Mattel of any future events raising a conflict of interest.35 A July 18, 2003, Wall Street Journal article suggested Bryant had copied a scrapped Mattel project, known as “Toon Teens,” in creating the Bratz. The story reported that MGA said that the Bratz were designed by Carter Bryant, a former member of Mattel’s Barbie team. Bryant didn’t work on the line that Mattel scrapped in 1998, but most Bar- bie designers had seen the prototypes. Although the doll line that was scrapped wasn’t exactly like the Bratz, they were remarkably similar, with the Bratz’s oversized heads, their pursed lips, cartoonish eyes, and big feet were similar to the dolls the Barbie team had created. Lily Martinez, a designer who still works at Mattel, came up with the idea for the big doll heads and posted her sketch on her cubicle where anyone could see them.36 By 2003, MGA’s revenues were about $800 million, with 65 percent of that coming from the Bratz doll line. After investigating the situation reported in the Wall Street Journal, Mattel discovered in November 2003 that Bryant had secretly entered into an agreement with MGA Enter- tainment, Inc., a competitor, during the time that he was employed by Mattel, to receive royalties for “works for hire.” In an agreement signed September 18, 2000, Bryant agreed to provide product design services for MGA’s line of Bratz dolls in exchange for $5,500 per month for the first six months and $5,000 per month for the next three months, as well as a 3 percent royalty on the Bratz he worked on. Mattel filed its copyright registra- tion for the Toon Teens drawings on November 28, 2003, four years after the drawings were created. Bryant’s last day of employment at Mattel was October 20, 2000. Bryant went through the usual Mattel checkout. The checkout form used for Bryant misquoted Bryant’s Inventions Agreement, which did not expressly assign to Mattel Bryant’s interest in his ideas. This error may have resulted from the fact that prior versions of Mattel’s Inven- tions Agreement expressly assigned the contracting employee’s interest in his ideas. Bryant’s agreement identifies “discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpa- tentable,” language that was not in prior versions. Mattel filed suit against Bryant for (1) breach of contract, (2) breach of fiduciary duty, (3) breach of duty of loyalty, (4) unjust enrichment, and (5) conversion.37 MGA Enter- tainment intervened in that case. Mattel settled with Bryant but amended its complaint against MGA alleging intentional interference with contract; aiding and abetting breach of fiduciary duty, aiding and abetting breach of duty of loyalty, conversion, unfair com- petition, and copyright infringement.38 However, MGA counterclaimed against Mattel for appropriation of trade secrets. MGA’s counterclaim arose out of the activities of Mattel’s Market Intelligence Group, a collection of employees dispatched to international toy fairs and directed to gather information from the private showrooms of Mattel’s competitors through the use of false pretenses. Allegations in the counterclaim stated that the employees had made copies of identification credentials in order to gain access to the private showrooms, showrooms that were intended for buyers to be able to see what was available for purchase from MGA in the future. A jury found for Mattel on all counts, concluding that Bryant conceived the idea for the name Bratz and created the concept drawings and sculpt for the Bratz dolls during his second term of employment with Mattel (January 4, 1999, to October 4, 2000). The federal district court placed the Bratz trademarks in a constructive trust and enjoined MGA from continuing to sell dolls. MGA appealed, and the case was remanded for a new trial. Upon remand, both companies moved for summary judgment on various issues. The court denied summary judgment on some issues but required a trial for others, including MGA’s counterclaims on Mattel’s market intelligence group.39 Following approximately two weeks of deliberations, the jury found that Mattel had misappropriated twenty-six trade secrets owned by MGA, and awarded MGA $3.4 mil- lion in damages for each act of misappropriation, reaching a total award of $88.5 million. The jury also found that Mattel’s misappropriation had been willful and malicious, thus entitling MGA to exemplary damages under Cal. Civ. Code § 3426.3, for a total verdict of $177.5 million, followed by an award by the court of $2.52 million in attorneys’ fees and costs to MGA.40 However, that decision, including the determination of attorney’s fees, was reversed and is now back in federal district court.41
One expert commented that the litigation “killed” the Bratz line and nearly destroyed MGA as a competitor. Were the competitors killing each other and should Mattel have done more to protect its trade secrets, is an agreement with an employer necessary in order to keep you from taking trade secrets to your next employer?
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