U.S. appeals judges on Wednesday questioned whether a California trial judge went overboard by awarding MGA Entertainment Inc's Bratz doll franchise to Mattel Inc after MGA lost a copyright infringement trial to its rival in 2008.
The three-judge panel of the Ninth U.S. Circuit Court of Appeals also took aim at Mattel's employment contract at the center of the dispute over the big-headed, pouty-lipped ethnic doll line during an oral argument in Pasadena, California.
The judges did not indicate when or how they would decide the closely watched case but they would have to rule faster than usual to stop the transfer of Bratz to Mattel.
MGA, which is under a court order to hand over the popular franchise to Mattel by January 21, asked the appeals court to halt the draconian remedy and to overturn the case on grounds of mistakes by trial judge Stephen Larson.
Mattel's agenda has been to kill Bratz, MGA attorney Josh Rosenkranz told the court, adding that MGA was hobbling right now and faced imminent demise if Larson is not reversed.
Mattel's attorney, Daniel Collins, said Larson correctly awarded the franchise, along with the Bratz name, after a jury found that former Barbie designer Carter Bryant sold MGA the idea for Bratz while he was still under contract to Mattel.
But Chief Judge Alex Kozinski and Judges Kim Wardlaw and Stephen Trott wanted to know why Larson had not awarded Mattel a royalty or an ownership stake in Bratz, based on the jury's $10 million damages award for copyright infringement.
'DRASTIC AND UNPRECEDENTED'
(The jury) didn't give Mattel everything. They gave them a small fraction of what they asked for, Kozinski said, adding that Larson's remedy was quite drastic and somewhat unprecedented.
Collins said the judge had been concerned that hostility between the parties would make a royalty scheme unworkable.
Why is it unworkable? Trott queried. You order a royalty and they pay it.
Do they not cash checks from someone they don't like? Kozinski said. I don't find that idea persuasive.
Wardlaw commented that Larson seemed to take opposition to his rulings from MGA quite seriously and wondered whether that didn't color his judgment in fashioning the draconian remedy.
The judges also seemed concerned that Larson's ruling did not require Mattel to continue manufacturing Bratz, which has cut deeply into market share for Barbie since its 2001 launch.
What about all those little girls out there who use the dolls and like the dolls? Kozinski said. If we were to affirm this ... would there be anything to prevent Mattel from killing it in six months?
Mattel has pledged to have its first Bratz dolls out in April but profitability and other factors probably would determine whether it is continued, Collins told the panel.
The judges also focused on whether a Mattel inventions agreement signed by Bryant gave the toy giant ownership of ideas he came up with at any time during his employment.
There is nothing in here that says, 'any idea,' Trott said. So if he just walked over to MGA and said, 'I've got an idea that would be covered?
'At any time' could mean when I am at work .... Does this mean when I go to the bathroom? When I am asleep? Kozinski asked. I don't think I buy much of that, Mr. Collins.
Kozinski said, however, that Bryant did exactly what Mattel was trying to prevent him from doing when he used Mattel materials and workers to create a Bratz prototype.
The case is MGA Entertainment v. Mattel, Case No. 09-55673 and 09-55812, Ninth U.S. Circuit Court of Appeals.
(Reporting by Gina Keating; Editing by Richard Chang)