MGA Entertainment Gets Bratty With Mattel Again

The toy makers are to square off in court once more.

Jan 16, 2014 at 3:31PM

Geez, is this still going on? I thought the long-running dispute between Mattel (NASDAQ:MAT) and MGA Entertainment was settled last year with the toy industry giant having to pay a reduced settlement in the Bratz vs. Barbie imbroglio. Now it appears they'll be heading back to court as the pouty-lipped Bratz doll maker is suing the House of Barbie for $1 billion, alleging trade secrets were stolen.

Barbie is already suffering from an identity crisis. Shipments of the iconic doll slipped 1% in the U.S. in the third quarter, though that's a somewhat better position than earlier in the year and up 3% on a worldwide basis, with international markets representing two-thirds of Barbie's total revenues. As more than 50% of the point-of-sale in the toy business occurs in the fourth quarter, Mattel was looking to the Christmas season for a friendly boost, though the lackluster environment most of retail experienced might not bode well for the dramatic recovery it needs.

Part of its problem has been the cannibalism its other doll introductions have caused. Monster High, a collection of dolls based on the offspring of classic monsters such as Dracula, Frankenstein's monster, and the Mummy, and Disney-licensed products including the Princess line featuring female leads from various movies including Little Mermaid, Belle, and Sleeping Beauty, have had a strong response from consumers, which naturally siphons sales away from Barbie.

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But Bratz isn't doing any better, and in fact, is doing a whole heckuva lot worse these days, which might be what's driving MGA to continue tilting at this particular windmill. Forbes estimates sales of the sassy dolls are no more than $50 million, a dramatic decline from their heyday, when they pulled in hundreds of millions of dollars for the toy maker.

MGA Entertainment asserts in a complaint filed in a California superior court that Mattel engaged in a bit of corporate espionage by sending undercover representatives to toy fairs for more than a decade to steal competitive secrets such as price lists and unreleased product attributes that would give the toy maker "an unfair and illegal advantage in the market" while costing MGA "tens of millions of dollars in damages."

Of course, these are pretty much the same claims MGA made against Mattel last time the two tangled in court, so the bigger toy maker expressed hope that the "stale claims brought in MGA's lawsuit today are barred by the statute of limitations." Even so, the Bratz maker pouted after the court ruling last year, saying it would "absolutely" be filing another lawsuit since Mattel's court victory was based on a "technicality."

The legal spat between the two began a decade ago when Mattel alleged that MGA hired away Carter Bryant, the Mattel employee credited with originally creating the Bratz characters while working for Mattel. After a jury awarded Mattel $100 million in 2008, an appeals court overturned the verdict and sent the case back to the lower court, where a new jury sided with MGA. That's what the appeals court reversed last January, though the courts said just last month that Mattel couldn't drag its feet any longer and had to pay MGA the $138 million in legal fees it was due.

The two toy makers have spent a lot of time inside a courtroom beating each other up over who did what to whom, but maybe this Bratz vs. Barbie catfight can be settled in a more appropriate venue: the playground.

No laughing matter
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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Mattel and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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