Thursday, February 14, 2013

Ninth Circuit Vacates MGA's Trade Secrets Counterclaim Award

The long-running dispute between Mattel and MGA Entertainment is one of the most notable, costly competition cases of the last decade. As most readers probably know, Mattel makes the popular Barbie line of dolls and sued its former designer, Carter Bryant, who allegedly conceived of the Bratz line of dolls while working for Mattel. Under his invention assignment agreement, Mattel would have been entitled to exploit these ideas and designs.

After Mattel won a large damages award, the Ninth Circuit Court of Appeals reversed and found numerous errors. Only after the case was remanded back to the district court did MGA submit a trade secrets counterclaim. When the case was retried, Mattel was far less successful, losing its principal claims and also suffering a judgment against it on the newly asserted counterclaim of $172 million.

A few weeks ago, the Ninth Circuit again reversed and found MGA's trade secrets counterclaim never should have gone to the jury. The rationale? It was not compulsory, as it was not logically related to the copyright claim. In essence, MGA's counterclaim rested on the theory that Mattel's employees posed as buyers at toy fairs and improperly gained access to confidential information through deception. This wasn't part of the principal claims in the case. A counterclaim-in-reply can only be submitted to the jury if it's compulsory.

So MGA has to start all over again on its counterclaim, which certainly will lead to another appellate chapter in this long-running saga.

California, where the suit is pending, has adopted the Uniform Trade Secrets Act, and the UTSA generally sets forth a 3-year statute of limitations for trade secrets claims. However, there are a few exceptions. States that have modified the uniform act to allow for a 5-year limitations period are: Georgia, Illinois, and Missouri. States choosing a 4-year period are: Maine, Nebraska, Ohio, and Wyoming. And Alabama maintains a 2-year statute of limitations for trade secrets actions. The non-UTSA states (Massachusetts, New York, and Texas) each adopt a 3-year period.

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