Morris Manning & Martin, LLP

Topsy-Turvy Toy Tiffs: How the Bratz Doll Case Illustrates the Ambiguity of Language in Employment Agreements

10.22.2010

It has been over two years since the battle over the Bratz doll franchise began, and the fight is not over yet.  On July 22, 2010, the Ninth Circuit Court of Appeals in San Francisco handed down a ruling that overturned previous court decisions regarding the case, and provided perspective on drafting employment agreements.

Background

The dispute began when Carter Bryant, an employee of Mattel at the time, created and pitched the idea for Bratz to MGA Entertainment, an industry rival.  Mattel eventually brought MGA to court, with both companies claiming full ownership rights over the franchise.

The district court ruled in favor of Mattel on virtually every point.  It found MGA liable for copyright infringement, issued a constructive trust over all Bratz-related trademarks to Mattel, and awarded Mattel $10 million dollars in damages.

However, the Ninth Circuit Court’s ruling identified major errors in the district court’s initial findings.  Each related to interpretations of language from the employment agreement.

Ideas vs Inventions

In Bryant’s employment agreement with Mattel signed in 1999, there is a provision where Bryant agreed to:

“communicate to the Company as promptly and fully as practicable all inventions conceived or reduced to practice by me (alone or jointly by others) at any time during my employment by the Company.  I hereby assign to the Company…all my right, title and interest in such inventions, and all my right, title, and interest in any patents, copyrights, patent applications or copyright applications based thereon”.

The agreement further specifies that the term ‘inventions’, “includes, but is not limited to, call discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable”.  The district court held that this provision assigned Bryant’s ideas to Mattel, even though ‘ideas’ were not included on that list or mentioned anywhere else in the contract. 

The Ninth Circuit reversed, concluding that the agreement could be interpreted to cover ideas, but that the text does not compel that reading.  Contracts Mattel drafted for other employees, for example, expressly assigned their ‘ideas’ as well as their ‘inventions’:  thus implying that the term ‘inventions’ alone does not include ‘ideas’. 

The Ambiguity of Language 

While “ideas’ may not be necessarily protected, Mattel also claimed ownership of Bryant’s preliminary sketches and doll sculpt - clearly “inventions”, and therefore covered by the employment agreement. However, the dispute arose from the ambiguous phrase that covered inventions created “at any time during my employment”. 

Mattel asserted that this covered every invention created at any time, day or night, during Bryant’s contracted employment with the company. MGA argued that the employment agreement did not cover those inventions because they were not created during Bryant’s working hours, but rather on his own free time.  

The district court agreed with Mattel’s interpretation:  that the agreement assigned inventions even if they were not made during working hours.  Using the instructions provided by the district judge, the jury found that Mattel had rights to the preliminary sketches and sculpt.  However, the Ninth Circuit reversed because the agreement’s language is ambiguous and some extrinsic evidence supports each party’s reading:  this interpretation issue should have been submitted to the jury to decide.

Practical Impact

The battle for Bratz exemplifies the importance of precise language in employment agreements.  Imprecise definitions can cost a company millions in a lawsuit.  Employers would be wise to make sure that their definitions in employment agreements are as detailed as possible.

This decision can be read at http://www.ca9.uscourts.gov/datastore/opinions/2010/07/22/09-55673.pdf