Barbie v. Bratz: Employers Beware of Employee Contracts with Previous Employers

Posted on October 29, 2008


On August 26, 2008, a federal jury awarded toy giant Mattel a $100 million dollar verdict in their copyright infringement lawsuit against MGA Entertainment, Inc.  The case centered around MGA’s Bratz dolls, which are highly stylized fashion dolls popular among "tweens", or girls 7 to 12.  MGA and its CEO were told to pay a combined $90 million in three causes of action related to Mattel’s employment contract with Mr. Carter Bryant, the designer who developed the Bratz concept.  These causes of action include intentional interference with contractual relations, aiding and abetting breach of fiduciary duty, and aiding and abetting breach of the duty of loyalty.

The jury awarded damages of $20 million against MGA and $10 million against MGA’s CEO in each of three causes of action – intentional interference with contractual relations, aiding and abetting breach of fiduciary duty, and aiding and abetting breach of the duty of loyalty.  It also found that MGA owed Mattel $6 million for copyright infringement, while MGA’s CEO owed $3 million in distributions he received from Bratz-related sales, and MGA Hong Kong owed $1 million.  The jury found that Mr. Bryant developed the concept while working at Mattel.  Mr. Bryant settled with Mattel on the eve of trial in a confidential settlement. 

Questions still abound after entry of this verdict, however.  For example, still at issue is (a) may MGA continue to make and market the Bratz dolls and (b) if so, will MGA have to pay Mattel royalties for these rights?  Mattel will seek an injunction in an attempt to prevent MGA from ever producing another Bratz product.

This case highlights the importance of employment contracts between employees and their employers.  Breach of these agreements by an employee may lead to detrimental consequences for a subsequent employer, as is evidenced by this case.  As such, employers should ask potential hires if they have employment, confidentiality and/or noncompetition agreements with former employers.  If the answer is yes, the current employer should review the agreements terms closely to determine the obligations of the employee, the length of the agreement term and if the employee is in compliance.

Employers should also conduct a review of their current employees’ agreements.  If a confidentiality agreement was not signed by employees that come in contact with or create confidential information, then employers should consider creating agreements with present employees.  These agreements should impose confidentiality with respect to trade secrets obtained or generated by the employee during employment, as well as obligations to disclose inventions, cooperate with patent evaluation and protection efforts, and assign ownership to the employer.

A solid employment agreement should clearly delineate certain items to the employee, including, but not limited to, the following:

  • Describe the duties the employee was hired to perform;
  • Set the compensation the employee shall receive for the services rendered;
  • Require the employee to disclose if he has previously entered into employment, noncompetition and/or confidentiality agreements with other employers;
  • Require the employee to maintain the confidentiality of all customer names and other business records of the Corporation; 
  • Require the employee not to duplicate or remove any records of the Corporation;
  • Prevent an employee from stealing new ideas or claiming ownership rights to inventions, improvements, patentable or copyrightable work created by employee during the course of his employment for the Corporation;
  • Require the employee to disclose prior works that are excluded from the scope of this Agreement; and
  • Outline potential remedies for breach of the agreement.

Therefore, employers should conduct due diligence reviews of employee’s agreements with prior employers, as well as requiring employees that come in contact with or create confidential information to sign employment agreements with confidentiality provisions.  Both of these measures will help employers avoid expensive litigation down the road. 

Elizabeth Ritter, Goodrich Law Firm, LLC