MATTEL, INC. v. MGA ENTERTAINMENT, INC. Case No. CV 04-9049 DOC (RNBx).
782 F.Supp.2d 911 (2011)
MATTEL, INC., v. MGA ENTERTAINMENT, INC., and Consolidated Actions.
United States District Court, C.D. California.
January 5, 2011.
David M. Stern , Kevin E. Deenihan , Matthew C. Heyn , Klee Tuchin Bogdanoff & Stern LLP, John B. Quinn , Randa A.F. Osman , Rory S. Miller , Diane C. Hutnyan , Jon D. Corey , Michael T. Zeller , William C. Price , Quinn Emanuel Urquhart & Sullivan LLP, Los Angeles, CA, Sanford I. Weisburst , Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Annette L. Hurst , Orrick, Herrington & Sutcliffe, LLP, San Francisco, CA, for Mattel Inc.
Diana M. Rutowski , Jason S. Angell , L. Kieran Kieckhefer , Theresa A. Sutton , Denise M. Mingrone , Sugithra Somasekar , Orrick Herrington and Sutcliffe LLP, Menlo Park, CA, Douglas Andrew Winthrop , Howard Rice Nemerovski Canady Falk & Rabkin, Warrington S. Parker, III , Yas Raouf , Jimmy S. McBirney , Orrick Herrington and Sutcliffe LLP, San Francisco, CA, Frank D. Rorie, Jr. , Orrick Herrington & Sutcliffe, James I. Stang , Richard M. Pachulski , Pachulski Stang Ziehl Young and Jones LLP, Jason D. Russell , Marina Vladimir Bogorad , Thomas Jerome Nolan , Skadden Arps Slate Meagher & Flom LLP, Los Angeles, CA, Thomas S. McConville , Andre De La Cruz , Mark P. Wine , Orrick Herrington & Sutcliffe LLP, Irvine, CA, John K. Ly , Patricia L. Glaser , Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, Los Angeles, CA, Michelle M. Campana , Skadden Arps Slate Meagher & Flom LLP, Lisa T. Simpson , Orrick Herrington & Sutcliffe LLP, New York, NY, for MGA Entertainment, Inc.
AMENDED ORDER ON MGA'S MOTION FOR SUMMARY JUDGMENT; MATTEL'S MOTION FOR PARTIAL SUMMARY JUDGMENT; MACHADO'S MOTION FOR SUMMARY JUDGMENT; MATTEL'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON MGA'S COUNTERCLAIMS-IN-REPLY
DAVID O. CARTER, District Judge.
Before the Court are the following Motions:
On April 27, 2004, Mattel filed a state court complaint against former employee Carter Bryant ("Bryant") alleging that Bryant breached his contractual and common law duties to Mattel by failing to disclose his concept sketches and sculpts of the Bratz dolls prior to leaving Mattel for MGA Entertainment, Inc. ("MGAE") on or about October 4, 2000. Bryant filed a counter-claim against Mattel in state court and filed a separate action for declaratory relief in federal court on November 2, 2004, on which date Bryant also removed Mattel's state court lawsuit to federal court. MGAE intervened in Mattel's suit against Bryant on December 7, 2004 and, four months later, filed a stand-alone complaint in federal court against Mattel for trade dress infringement, dilution, unfair competition, and unjust enrichment, alleging that Mattel infringed MGAE's distinctive packaging and interfered with MGAE's business relationships. On June 19, 2006, the Honorable Stephen G. Larson consolidated the three cases for all purposes upon finding that "the actions involve a number of common issues of law and fact."
Bryant was the only defendant named by Mattel's state court complaint. On November 20, 2006, Mattel sought leave to file an amended complaint that would "substitute [MGAE] for Defendant Doe 1, [MGA HK] for Defendant Doe 2, and [Larian] for Defendant Doe 3" and add MGA Mexico and Machado as defendants to a pleading that asserted a host of new claims unrelated to Bryant's conduct. (Dkt. 89.) Mattel's request was denied but only as a procedural matter; the court permitted Mattel to plead its proposed amendments "in the form of an amended answer and counterclaim in" MGAE's case against Mattel. (Dkt. 142.) Mattel filed its First Amended Answer and Counterclaims (FAAC) on January 1, 2007 (Dkt. 143) bringing the same claims that are now pending against MGA and Machado, though the substance of those claims and the detail with which they are alleged has changed considerably. Following the filing of Mattel's counter-claims against MGA and Machado, the court ordered claims related to the ownership of the Bratz line of dolls—raised in Mattel's complaint against Bryant and Mattel's FAAC—to be tried separately from, and prior to, MGAE's affirmative claims and Mattel's counter-claims arising out of conduct unrelated to the ownership of Bratz.
Mattel entered into a settlement with Bryant on the eve of the "phase 1" trial, leaving the following claims to be tried to the jury: (1) Mattel's claim for intentional interference with contract against Larian and MGAE; (2) Mattel's claim for aiding and abetting breach of fiduciary duty against Larian and MGAE; (3) Mattel's claim for aiding and abetting breach of duty of loyalty against Larian and MGAE; (4) Mattel's claim for conversion against MGAE, MGA HK, and Larian; (5) Mattel's claim for statutory unfair competition against Larian, MGAE, and MGA HK; (6) Mattel's claim for declaratory relief against Larian, MGAE, and MGA HK; and (7) Mattel's claim for copyright infringement against Larian, MGAE, and MGA HK. (Dkt. 3917 at 11.) Mattel prevailed on each of its claims and the jury found that Bryant conceived the idea for the name Bratz and created the concept drawings and sculpt for the Bratz dolls during his second term of employment with Mattel (January 4, 1999 to October 4, 2000). On the basis of the jury's special
During the pendency of MGA's appeal of the phase 1 orders, discovery proceeded on the claims not tried in the phase 1 trial. Mattel amended its responsive pleading three times and joined Mattel Mexico as a plaintiff to its operative Fourth Amended Answer and Counterclaims ("4AAC"), which brings claims arising out of MGA's relationships with Bryant and other former Mattel employees who allegedly stole Mattel's confidential information before leaving Mattel. The 4AAC's claims also arise out of MGA's alleged litigation misconduct and unwillingness to comply with the phase 1 jury's verdicts, though many of these allegations were dismissed on August 2, 2010. MGA narrowed its trade dress infringement allegation to the two-pronged claim that Mattel copied MGA's trapezoidal and heart-shaped packaging. MGA also filed counterclaims-in-reply that arise out of Mattel's alleged market research tactics.
On July 22, 2010, MGA prevailed on its appeal. In vacating the constructive trust and injunction, the Ninth Circuit held that the equitable relief was impermissibly broad and predicated upon jury verdicts tainted by erroneous instruction. On October 22, 2010, this Court granted MGA's motion for a new trial on all claims and issues tried to the jury in phase 1, finding that the indistinct and inseparable claims were all infected by instructional error. The Court separately discarded with the earlier bifurcation of claims, and ordered that all pending claims between the parties be tried in a single proceeding to commence on January 11, 2011.
Rule 56 of the Federal Rules of Civil Procedure provides that "[a] party may move for summary judgment, identifying each claim or defense—or the part of each claim or defense—on which summary judgment is sought." Fed.R.Civ.P. 56(a). Summary judgment should be granted "when, viewing the evidence in the light most favorable to the non-moving party, there are no genuine issues of material fact" and the moving party is entitled to judgment as a matter of law. Avery v. First Resolution Mgmt. Corp., 568 F.3d 1018, 1021 (9th Cir.2009); see also Fed. R.Civ.P. 56(a). In adjudicating cross-motions for summary judgment, the Ninth Circuit "evaluate[s] each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences." ACLU of Nevada v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir.2006) (citations omitted); see also Friends of Columbia Gorge, Inc. v. Schafer, 624 F.Supp.2d 1253, 1263 (D.Or.2008).
I. Bryant's Inventions Agreement
As explained in the order granting MGA's Motion for New Trial, Mattel's counter-claims for conversion, intentional interference with contractual relations, aiding and abetting breach of fiduciary duty, copyright infringement, and declaratory relief require the interpretation of Mattel's Employee Confidential and Inventions Agreement (the "Inventions Agreement") that Bryant signed on January 4, 1999. By paragraph 2 of the Inventions Agreement Bryant agreed to "communicate to [Mattel] as promptly and fully as
Prior to the phase 1 trial, Mattel successfully argued that the terms of the Inventions Agreement assigned to Mattel Bryant's right, title, and interest in his ideas for the names Bratz and Jade, leaving for the jury the question of whether Bryant's ideas were conceived at any time during his employment with Mattel. On appeal, the Ninth Circuit held that "the agreement could be interpreted to cover ideas, but the text doesn't compel that reading," and suggested that this Court evaluate whether the ambiguity "could be resolved by extrinsic evidence."
1. Extrinsic Evidence
Mattel argues that Bryant and Mattel mutually intended for the Inventions Agreement to assign to Mattel Bryant's right, title, and interest in the ideas he conceived or reduced to practice at any time during his employment with Mattel. Because "[t]he fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties," the Court may consider extrinsic evidence of the parties' intent when the contract is ambiguous. Morey v. Vannucci, 64 Cal.App.4th 904, 912, 75 Cal.Rptr.2d 573 (1998) (quoting Bank of the West v. Superior Court, 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992)) (quotation marks omitted).
Mattel cites Bryant's testimony from an unrelated lawsuit and the deposition testimony of Mattel's corporate designee to show that both Bryant and Mattel understood the Inventions Agreement to assign Bryant's right, title, and interest in his ideas. As a general rule, evidence of the contracting parties' "undisclosed intent or understanding" is irrelevant to the contract's interpretation. Cedars-Sinai Medical Ctr. v. Shewry, 137 Cal.App.4th 964, 980, 41 Cal.Rptr.3d 48 (2006). However, evidence of the parties' subjective intent may be used "in interpreting an ambiguity, although in the case of contracts, it is a mutual declaration of intention which is sought to be found." Heston v. Farmers Ins. Group, 160 Cal.App.3d 402, 414, 206 Cal.Rptr. 585 (1984) (finding prior representations about similar agreement relevant to whether parties shared intent).
BY MR. GRINNELL:
Declaration of Jon Corey In Support of Mattel's Motion for Partial Summary Judgment, Exh. 84 (Art Attacks v. MGA May 2, 2007 Trial Tr. (Carter Bryant) at 115:25 to 123:15).
Bryant's ambiguous testimony about a distinct agreement, as well as his understanding at the time of his resignation, does not evidence "the mutual intention of the parties as it existed at the time of contracting." Cal. Civ.Code § 1636 (emphasis added). The October 19, 2000 proprietary information checkout form referenced in Bryant's testimony is a document he was asked to sign on his last day at Mattel. (Ex. 43 to MGA's MSJ.) As a reminder to Bryant, the checkout form purported to quote the assignment provision in the Inventions Agreement:
Ex. 43 to MGA MSJ.
The checkout form misquoted Bryant's Inventions Agreement, which did not expressly assign to Mattel Bryant's interest in his ideas. This error may be attributable to the fact that prior versions of Mattel's Inventions Agreement expressly assigned the contracting employee's interest in his ideas. Compare id. and Exs. 9077, with Proctor Decl., Ex. 124. The minimal overlap between these prior versions and the version signed by Bryant—for example, Bryant's agreement identifies "discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable," many of which do not appear in prior versions—shows a genuine issue of material fact as to whether Bryant's understanding about the checkout form paralleled his prior understanding about the scope of the Inventions Agreement.
Mattel's evidence of its own intent is also undermined by the dissimilarity between the Inventions Agreement and checkout form. For example, Mattel's Vice President for Human Resources, Alan Kaye, submitted a declaration stating that:
Declaration of Alan Kaye in Support of Mattel's Motion for Partial Summary Judgment ¶ 8.
Kaye's claim that Mattel considers ideas "part and parcel" with inventions is belied by the fact that the checkout form and earlier versions of the agreement treated inventions and ideas as distinct. Ninth Circuit Op. at 10534. Though he claims familiarity with "Mattel's understanding of and position with respect to ownership of ideas and concepts developed off-site," Kaye could not explain at his deposition why the Inventions Agreement signed by Bryant omitted the word "ideas." Deposition of Alan Kaye, Vol. I, June 19, 2010, 127:2 to 130:3. Nor could Kaye define the phrase "includes but is not limited to" in Bryant's agreement, even though his declaration claims a "familiar[ity] with the Inventions Agreement that Bryant signed in 1999." Compare id. at 127:23 with Kaye Decl. ¶ 4.
The fact that prior versions of the agreement used the word ideas may undermine the credibility of Mattel's witness. Travis v. Southern Pacific Co., 210 Cal.App.2d 410, 421, 26 Cal.Rptr. 700 (1962). However, contrary to MGA's argument, the evolution of the Inventions Agreement does not entitle MGA to judgment as a matter of law on this issue, since a reasonable fact-finder could conclude that Bryant intended for the agreement to encompass ideas. Both motions for summary judgment are denied on this issue.
MGA argues that Bryant lacked an assignable right, title, or interest in his ideas because ideas are not property under California law. The Ninth Circuit rejected this argument, which MGA made in its opening brief on appeal, by holding that a narrower constructive trust may be imposed after re-trial. MGA's argument is thus precluded by the law of the case doctrine. United States v. Houser, 804 F.2d 565, 567 (9th Cir.1986) ("A trial court may not [on remand] reconsider a question
MGA also claims the assignment of ideas is (1) contrary to a reasonable employee's expectations and (2) unconscionable. These factors preclude the assignment of ideas if Mattel imposed and drafted the agreement and offered Bryant "only the opportunity to adhere to the contract or reject it." Neal v. State Farm Ins. Cos., 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781 (1961). Whether Bryant was forced to accept the agreement as drafted turns on his credibility. For example, a more senior Mattel employee declares that he negotiated a more limited assignment with Mattel. Declaration of Robert Hudnut in Support of Mattel's Opp. to MGA's MSJ ¶ 4. The fact-finder must also resolve whether the assignment of ideas was contrary to a reasonable employee's expectations, given Bryant's testimony acknowledging the assignment of ideas in his other agreements with Mattel. Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 820, 171 Cal.Rptr. 604, 623 P.2d 165 (1981) ("[Graham] had been a party to literally thousands of ... contracts containing a similar provision...."). There is likewise a genuine issue of material fact as to whether the assignment of Bryant's interest in his ideas would have been unconscionable, since paragraph 2(a) of the Inventions Agreement similarly requires the non-disclosure of employee ideas. Contrary to MGA's argument, the assignment of ideas is no more offensive to employee mobility than the assignment of inventions, which MGA requires of its employees. Proctor Dec., Ex. 179 at 4604. As long the assignment does not extend to post-employment work, it is generally enforceable. See Patent & Licensing Corp. v. Olsen, 188 F.2d 522, 525 (2d Cir.1951).
Both motions for summary judgment are denied on this issue of contract interpretation.
Bryant's Inventions Agreement assigned his right, title, and interest in inventions "conceived or reduced to practice by me (alone or jointly by others) at any time during my employment with the Company." Proctor Dec., Ex. 124. Prior to the phase 1 trial, Mattel successfully argued that the phrase "at any time during my employment" extends to nights and weekends. (Dkt. 3285 at 5.) On appeal, the Ninth Circuit held that the term "at any time during my employment" was ambiguous. The parties' exclusion of inventions defined by Cal. Labor Code § 2870
The Ninth Circuit's mandate forecloses this Court from deciding the issue at summary judgment. Concluding that "[e]xtrinsic evidence doesn't resolve the ambiguity," the court held that "[t]he issue
No exception to the law of the case doctrine applies, because the Ninth Circuit's consideration of the extrinsic evidence was not erroneous, let alone "unreasonable," as MGA argues. For example, the Ninth Circuit cited the deposition testimony of Veronica Marlow, an independent contractor who both introduced Bryant to MGA and developed the Bratz fashions with three moonlighting Mattel employees. (See TX 05-0091-TX 05-0120; Proctor Dec., Ex. 67.) She testified "it was common knowledge" that Mattel employees did work on their own time, though she hesitated to name the employees who "worked for other companies." Deposition of Veronica Marlow, at 51:21-25. The fact-finder must measure the credibility of her testimony, possibly after determining whether her unwillingness to name names was reasonable.
Regardless, the additional extrinsic evidence cited by the parties does not resolve the ambiguity anyway. Bryant expressed concern that selling his sketches could interfere with his Mattel employment, but as Mattel elsewhere argues, his alleged breaches "are not limited to assigning rights to MGA that Mattel owns." (Dkt. 8679 at 16:4-7.) Indeed, Bryant testified at deposition that he thought he owned inventions he created on nights and weekends, though other Mattel employees felt otherwise. Bryant's intent is relevant to the extent it evidences the parties' mutual understanding, and Mattel's understanding turns on Kaye's credibility, which is undermined by his inability to explain why earlier versions of Mattel's inventions agreement used the phrase "at any time during the period of my employment" while Bryant's version only used the time "at any time during my employment."
Both motions for summary judgment on this issue of contract interpretation are denied.
II. Copyright Infringement
Mattel registered copyrights in Bryant's concept sketches, as well as two concept sculpts that Bryant allegedly created while working for Mattel. Declaration of Michael Moore, Exs. 1-28. Mattel claims that MGA, MGA HK, Larian, and Bryant "have reproduced, created derivative works from and otherwise infringed upon the exclusive rights of Mattel in its protected works without Mattel's authorization." 4AAC ¶ 145. MGA moves for summary judgment on two issues: (1) MGA's production sculpts, which served as the template for the dolls sold to market, did not infringe on Bryant's concept sculpts or sculpt sketches; and (2) MGA's Bratz doll products did not infringe on Bryant's concept sketches.
To prove copyright infringement, Mattel must establish that: (1) it owns copyrights in the concept sketches and sculpts; (2) MGA copied original elements of the copyrighted works. Funky Films, Inc. v. Time Warner Entm't Co., L.P., 462 F.3d 1072, 1076 (9th Cir.2006) (internal citation and quotation marks omitted). Copying may be established by (1) direct evidence of the copying of original elements of the copyrighted work; or (2) access and substantial similarity "not only of the general ideas but of the expressions of those ideas as well." Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1164 (9th Cir.1977); see also Feist Pubs., Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). Mattel's ownership of copyrights in the
A. There is No Direct Evidence of Infringement
Mattel claims there is a genuine issue of material fact as to whether MGA directly copied from Bryant's works. It cites an MGA business plan stating that "[t]he Bratz are unique in many ways; their eyes are big with a hint of animé style; their lips are more pronounced, their feet and heads are oversized." A sculptor retained to work on the Bratz line testified that "Bryant's drawings have the factors that MGA say[s] are unique to the dolls, which is the oversized eyes, protrusive lips, and the diminished nose." MGA also conceded that Bryant's works inspired the dolls released to market.
Mattel's evidence of infringement is hardly direct. Testimony about MGA deriving inspiration from Bryant's sketches is prototypically circumstantial, and is incapable of rebutting evidence in the record that shows MGA's significant, independent investment in the design and development of the Bratz dolls. For example, it was MGAE's designers, not just Bryant, who sent input to MGA's doll production team in Hong Kong. MGA also assigned the tasks of sculpt design, packaging, facial design, and fashions to individuals other than Bryant. All of these individuals participated in the production process and submitted input to MGA HK, which manufactured the dolls. See, e.g., Proctor Dec., Exs. 50-51, 66.
Mattel's evidence does not establish the copying of original elements. The oversized head, protrusive lips, and diminished nose found in Bryant's sketches are not original elements. Ninth Circuit Op. at 10543-10544 ("[M]any fashion dolls have exaggerated features ... Moreover, women have often been depicted with exaggerated proportions similar to those of the Bratz dolls ... The concept of depicting a young, fashion-forward female with exaggerated features, including an oversized head and feet, is therefore unoriginal as well as an unprotectable idea."). Evidence that MGA copied the unoriginal, exaggerated features found in Bryant's sketches does not establish infringement. Cf. Roth Greeting Cards v. United Card Co., 429 F.2d 1106, 1109 n. 3 (9th Cir.1970) ("Thus, if United had copied only the textual materials, which were not independently copyrightable, United might have been able to do so with impunity."); see also Narell v. Freeman, 872 F.2d 907, 910 (9th Cir.1989) ("A finding that a defendant copied a plaintiff's work, without application of a substantial similarity analysis, has been made only when the defendant has engaged in a virtual duplication of a plaintiff's entire work."); Situation Mgmt. Sys., Inc. v. ASP Consulting LLC, 560 F.3d 53, 58 (1st Cir.2009) (requiring evidence of both factual copying and infringement of protected elements).
B. Substantial Similarity
Summary judgment must be granted where "no reasonable juror could find substantial similarity of ideas and expression viewing the evidence in the light most favorable to the nonmoving party." Kouf v. Walt Disney Pictures & Television, 16 F.3d 1042, 1045 (9th Cir.1994). A two part extrinsic/intrinsic test determines whether two works are substantially similar. See Shaw v. Lindheim, 919 F.2d 1353, 1357 (9th Cir.1990). The extrinsic test requires an objective examination of concrete manifestations of the ideas and expression in the two works, while the intrinsic test requires a subjective evaluation, most often by the fact-finder, of the "`total concept and feel of the works.'" Cavalier v. Random House, 297 F.3d 815,
The "extrinsic" test originally required a comparison of only the ideas expressed by the two works, but has since been augmented to include an objective examination of articulable similarities in both ideas and expression. Funky Films, 462 F.3d at 1077 (quoting Kouf, 16 F.3d at 1044).
1. The Sculpt
A genuine issue of material fact exists as to whether MGA's Bratz Production Sculpt (TX 17733) infringed Bryant's sculpt (TX 1136), in which Mattel registered a copyright. Since "[t]he expression of an attractive young, female fashion doll with exaggerated proportions is  highly constrained," the protectable elements subject to an extrinsic analysis are few, and the standard to be applied at the intrinsic stage is virtual identity overall. Am. Ninth Cir. Op. at 10544 & n. 9 ("When there are few protectable features not required by the underlying idea, applying the substantial similarity test to them is effectively the same as determining whether the dolls or doll sculpts are virtually identical overall.").
Both the Bratz production sculpt and Bryant's sculpt depict a young, female fashion doll with exaggerated proportions—an unprotectable idea. The Bratz production sculpt and Bryant's sculpt also share large heads, thick lips, high cheekbones, slim arms, long legs, and slim torsos, all of which are unprotectable features as they are required by the underlying idea.
A reasonable fact-finder could conclude that the protectable expression of the Bryant sculpt is substantially similar to
A reasonable jury could also find substantial similarity in the precise angles, measurements, and shapes of the sculpts' midsections. For example, although the sculpts have very small, defined waists, both have a slightly protruding, rounded lower stomach. Both sculpts also lack the roundness in the breast area that is common to many other fashion dolls with exaggerated, idealized proportions. Likewise, a reasonable jury could note substantial similarity in the uniquely rounded shoulders of both sculpts, as well as the way in which both sets of lower arms flare out from the body in an unnatural and unrelaxed state. Looking at the back of the sculpts, a reasonable jury could find substantial similarity in noticeable indentation that exists between both sculpts' shoulder blades. A view of the sculpts' profile reveals the dramatic S-shaped curve in both sculpts' spines.
Both on this illustrative list of substantial similarities in protectable elements of the sculpt, a genuine issue of material fact remains as to whether the Bratz Sculpt infringes Bryant's Sculpt.
2. First Generation Dolls
MGA contends the first generation of Bratz dolls are not substantially similar to any of Bryant's sketches.
(a). First Generation Jade
There is a genuine issue of material fact as to whether there are articulable similarities between the first generation Jade doll and Bryant's Jade sketches. Both the doll and the sketches express the idea of a complete, young, hip female fashion doll who wears trendy clothing and exhibits a bratty look or attitude. The doll and sketches use exaggerated physical proportions to express this idea, including larger eyes, heads, lips and feet, longer legs, and skinnier torsos and limbs than found in nature; however, the mere fact of these exaggerated features is both unoriginal and an unprotectable idea. See Ninth Circuit Op. at 10546-10547; cf. Mattel, Inc. v. Goldberger Doll Mfg. Co., 365 F.3d 133, 136 (2d Cir.2004) ("An upturned nose, bow lips, and wide eyes are the `idea' of a certain type of doll face. That idea belongs
The dolls and sketches nevertheless share many protectable features, including "fashions and hairstyles." Ninth Circuit Op. at 10547. Both the doll and the girl in the sketch don pink, midriff-baring, short sleeved t-shirts. On the center of the t-shirts is an emblem of a creature that appears to be a pink Cheshire-like cat with green eyes. Compare TX 1107 with TX 17551. The t-shirts are worn over a long-sleeved, off-pink shirt adorned with dark pink, light pink, and white polka dots. See id. The doll and the girl in the sketch wear olive-green, flared, non-denim pants with off-pink vertical piping that runs down the outer seam. See id. Both the doll and the girl in the sketch sport red sneakers decorated with pink accenting and a lip on the front of the shoe that curls upwards, and, to complete the look, shoelaces untied. See id. Both accessorize with a silver satchel with quilted accenting. The doll and the girl in the sketch complete their look with light-colored lipstick and lip liner, pinkish eyeshadow, and dark bangs that protrude from a flat-topped, pink-based, multi-colored hat with horizontal stripes and two pink thread-braid tassels dangling from the uppermost corners.
The doll and the girls in the sketches also share anatomical similarities unrelated to standard features of the underlying idea, especially with respect to the eyes. For example, the doll and sketches both depict three equidistant and identically shaped eyelashes, having an equal and triangular girth, on each doll eye, with each of the eyelashes protruding from the eyelid at identical angles. Compare Ex. 302 at MGA 006463 with TX 17551-001. Although the upper eyelid in Bryant's Jade sketches droops a little lower than on the doll, the dolls and sketches all lack a lower eyelid and the surface area between the top of the upper eyelid and the bottom of the upper eyelid is consistent across the eyelid between the sketches and doll. See id. The doll is also substantially similar to the sketches' particular expression of the eyes: the pupils are dilated in a nearly identical manner, with the pupils situated at the top center of the iris (these sketches apparently depict young female fashion dolls with defective vision), and the inner corner where the upper and lower eye lids meet sits at the center of the nose. Id.
To be sure, there are dissimilarities between the doll and sketches. For example, the doll wears rolled up pants made of a shiny fabric that resembles an alligator's skin. By contrast, the pants worn by the doll depicted in the sketch appear to be made of cotton, and fall over the shoes depicted in the sketch; the pants drawn in the sketch also feature prominent orange piping. The doll's shoes reveal more white cushioning on the outside of the shoe than the shoes depicted in the sketch. The satchel depicted in the sketch bears the word "Purrfect" and the doll's satchel has no lettering or otherwise narcissistic terms incorporating sounds commonly made by animals. The doll's lips are darker than the lips depicted in the sketch, and the doll's eyeshadow is two-toned and more dramatic than the eyeshadow depicted in the sketch. Finally, the girl depicted in the sketch has rosier cheeks and shorter hair (in pigtails) than the doll.
A reasonable fact-finder could easily conclude that there are articulable and substantial similarities between the protectable expression of the Jade sketch (Trial Exhibit 1107, 10638) and sculpt (Trial Exhibit 17551). MGA's request for
(b). First Generation Cloe
There is likewise a genuine issue of material fact as to whether the first generation Cloe doll and Bryant's sketches are substantially similar in their expression of the underlying idea. Compare TX 1109, 771 with TX 13903-001. Both the doll and the sketches express the idea of a complete, young, hip female fashion doll who wears trendy clothing and exhibits a bratty look or attitude. The doll and sketches share exaggerated physical proportions, including larger eyes, heads, lips and feet, longer legs, and skinnier torsos and limbs than found in nature; however, the mere fact of these exaggerated features is both unoriginal and an unprotectable idea. See Ninth Circuit Op. at 10546-10547; cf. Goldberger Doll Mfg. Co., 365 F.3d at 136 ("An upturned nose, bow lips, and wide eyes are the `idea' of a certain type of doll face. That idea belongs not to Mattel but to the public domain.").
A reasonable fact-finder could nevertheless conclude that the doll and sketches are substantially similar in their particular expression of these anatomical features. See id. ("But Mattel's copyright will protect its own particularized expression of that idea and bar a competitor from copying Mattel's realization of the Barbie features."). For example, both the girl depicted in the sketch and the doll have bright, cerulean eyes with dilated pupils centered on the upper half of the iris. Unlike the eye lids depicted on the Jade doll and in the Jade sketches, which maintain a consistent inward gradient where the upper and lower eye lids meet, both the Cloe doll and Bryant's Ze sketch depict lower eye lids that drop at a steep gradient and then immediately flatten for the latter half of their approach to the center of the face. Moreover, in addition to the three eye lashes located on the outside corner of the upper eyelid (as found on the Jade doll and in the Jade sketches), the Cloe doll and Ze sketch depict a patch of much smaller eye lashes that protrude from the outside corner of the lower eye lid (the doll's three eye lashes are evenly spaced but the eyelashes in the sketch appear to merge together).
The doll and the girls in the sketches also share non-anatomical features, including hairstyle and fashions. Both the sketch and doll depict a baby-blue, midriff-baring t-shirt adorned with sequined studding along the collar and the word "Angel" in cursive font in the center of the shirt; sparkling bell-bottom jeans with a fringe on the outer seams and a slit on the bottom outer ankle, which fall over the boots worn in the sketch and on the doll; and a baby-blue, bumpy, rubbery-textured belt with a square buckle. The doll is sold with a jacket worn in the sketch and both three button jackets have fold-over collars, rolled up sleeves, and fringes around the lower seam. Both jackets appear to be composed of the same sparkly denim fabric as the jean pants. The doll is sold with a pair of boots that, like the boots depicted in the sketch, are weighty and white, with an orange and brown buckle that falls on top of the foot. The sketch and the doll share a one-shouldered bag with a white base, teal piping, and a leopard-print flap that covers most of the front of the bag. The sketch and the doll share light blonde, long hair parted to the side and pulled back with a wide headband made of teal and gold fabric. Both have metallic-pinkish lip color, with noticeably contrasting, darker lip liner.
There are nevertheless certain differences between the doll and sketches. In the sketches, the lips are slightly parted, though the doll's lips remain closed. The doll's eyes are surrounded by blue eyeshadow, whereas the sketch's eyeshadow appears
A reasonable fact-finder could easily conclude that the Cloe doll and Bryant's Zoe sketches share many protectable features. MGA's motion for summary judgment is therefore denied as to the first generation of Cloe dolls.
(c). First Generation Yasmin
There is a genuine issue of material fact as to whether there are substantial similarities between the protectable elements of Bryant's Lupe sketch and the first generation Yasmin doll. Compare TX 1110 with TX 13901. Both the doll and the sketches express the idea of a complete, young, hip female fashion doll who wears trendy clothing and exhibits a bratty look or attitude. The doll and sketches share exaggerated physical proportions, including larger eyes, heads, lips and feet, longer legs, and skinnier torsos and limbs than found in nature; however, the mere fact of these exaggerated features is both unoriginal and an unprotectable idea. See Ninth Circuit Op. at 10546-10547; cf. Goldberger Doll Mfg. Co., 365 F.3d at 136 ("An upturned nose, bow lips, and wide eyes are the `idea' of a certain type of doll face. That idea belongs not to Mattel but to the public domain.").
The doll also depicts certain non-anatomical features found in the sketch, including fashions and certain elements of the hair style. For instance, the doll and the girl in the sketch don a purple, midriff-baring tube top as well as flared, light-colored pants that fall over pure platform shoes. Both pairs of pants feature prominent stitching along the sides of the outer leg and a pattern at the very bottom of each leg. Both accessorize with a tan satchel cinched at the top with a drawstring bow and decorated with a purple-themed, intricate, geometric pattern. Both sport a suede, maroon/brown bandana with fashion-keyhole designs along the edge that is threaded with an exposed drawstring tied into a bow at the nape. Both wear their hair with two small braids featured towards the front of their heads amongst their flowing locks. And both wear a similar smoky-purple eye makeup and identical lipstick surrounded by dark brown lip liner.
The Yasmin doll also parallels Bryant's particularized expression of Lupe's anatomical features. Like the other first generation Bratz dolls and sketches, the Yasmin doll and the girl in the sketch share dilated pupils located in eyes partially covered by upper eyelids. The Yasmin doll and the girl in the sketch both have hazel eyes with a speck of blue, accentuated by four upper eye lashes, as well as eye lashes on the bottom corner of the bottom eye lid of only the left eye. And both have an identically located small dark mole below the left eye.
There are ways in which a fact-finder could nevertheless find that there relevant similarities between the Lupe sketch and Yasmin doll are not substantial. The speck of blue in the doll's eye is much smaller than in the sketch. Though the doll's upper lip is smaller than its lower lip, the opposite is true in the sketch. The sketch depicts a large necklace, though the doll wears no such accessory. Moreover, the doll's eyeshadow contains more shades of brown than the eyeshadow depicted in
A reasonable fact-finder could easily conclude that the protectable details of the rendering of the underlying idea expressed by the sketch (Trial Exhibit 1110) and sculpt (Trial Exhibit 13901) are substantially similar. MGA's request for summary judgment as to the first generation Yasmin doll is therefore denied.
(d). First Generation Sasha
There is a genuine issue of material fact as to whether the first generation Sasha doll shares protectable elements of Bryant's Hallidae sketches. Compare TX 1108 and TX 3-5 with TX 17558. Both the doll and the sketches express the idea of a complete, young, hip female fashion doll who wears trendy clothing and exhibits a bratty look or attitude. The doll and sketches share exaggerated physical proportions, including larger eyes, heads, lips and feet, longer legs, and skinnier torsos and limbs than found in nature; however, the mere fact of these exaggerated features is both unoriginal and an unprotectable idea. See Ninth Circuit Op. at 10546-10547; cf. Goldberger Doll, 365 F.3d at 136 ("An upturned nose, bow lips, and wide eyes are the `idea' of a certain type of doll face. That idea belongs not to Mattel but to the public domain.").
The doll nevertheless depicts protectable expression found in the sketch, including fashions and hair style. Both the sketches and the doll depict long-sleeved t-shirts with horizontal stripes on the sleeves with a burst of orange in the center. In another Bryant sketch, TX 3-5, Hallidae wears a similar ensemble comprised of a multicolored, striped, long-sleeved shirt overlaid with an orange puffy vest. Both the doll and sketch also depict long, oversized, flared denim skirts with cargo pockets, which fall over remarkably similar white, orange, and blue sneakers with oversized soles and untied white laces. Both also depict blue and orange backpacks that bear the term "hip hop" and, in a display of wit, pictures of bunny rabbits. Both depict long, kinky, black hair trapped underneath silver triangular hats made of a ribbed knitted material and topped with a poof ball. Both depict dramatically defined eyebrows and eyes covered in two-toned eyeshadow, and makeup that includes purple-toned lip liner and loud cheek paint.
There are some elemental differences between the doll and sketches, though the differences between TX 17558 and TX 3-5 are more defined than the differences between TX 17558 and TX 1108, which are minimal. TX 3-5 depicts brown-toned eyeshadow, whereas TX 1108 and the doll share purple-toned eyeshadow. The bunny rabbit on the backpack depicted in TX
A reasonable fact-finder could conclude that the Hallidae sketches and Sasha doll are substantially similar in not just the ideas depicted, but in the expression of those ideas as well. See Kouf, 16 F.3d at 1045 (summary judgment only appropriate if no reasonable fact-finder could find substantial similarity of ideas and expression). MGA's motion is therefore denied as to the first generation Sasha doll.
3. Subsequent Generation Dolls
In addressing the district court's errors, the Ninth Circuit stated that it "fail[ed] to see how the district court could have found the vast majority of Bratz dolls, such as `Bratz Funk N' Glow Jade' or `Bratz Wild Wild West Fianna,' substantially similar—even though their fashions are hair styles are nothing like anything Bryant drew—unless it was relying on similarities in ideas." Ninth Circuit Op. at 10547. Since the court must determine at the extrinsic stage whether "no reasonable juror could find substantial similarity of ideas and expression," Kouf, 16 F.3d at 1045 (emphasis added), the Ninth Circuit's inability to identify a basis for a substantial similarity determination for dolls with distinct fashions and hair styles from Bryant's sketches disposes of the vast majority of Mattel's counter-claim as to the later generations of Bratz dolls.
Mattel nonetheless argues that "the proof of infringement is substantial" as to these subsequent generation dolls, relying upon a report prepared by its expert. See Declaration of Lee Loetz in Opposition to MGA MSJ. Mr. Loetz does not analyze the subsequent generation dolls on a doll by doll basis, but instead purports to provide exemplar comparisons of the placement and proportions of body parts, (id., Ex. B at 7), poses, (id., Ex. B at 9), facial elements, (id., Ex. B at 10), and clothing/accessories, (id., Ex. B at 12).
Mr. Loetz's report commits a number of logical errors that corrode the foundation for his analysis. First, Mr. Loetz attempts, on numerous occasions in his report, to show that "parallels between the drawings and doll faces are not coincidental, but the result of executing the drawings in the dolls." See, e.g., id., Ex. B at 12. Mr. Loetz confuses evidence of factual copying—which is relevant to a defense of inadvertent infringement—with copying of original elements of Bryant's works that are protectable. See Goffa Intern. Corp., 210 F.Supp.2d at 159. So long as the parallels between the drawings and the subsequent generations of dolls were parallels in ideas or unprotectable expression, MGA was free to execute the drawings with impunity. Narell, 872 F.2d at 910.
Second, Mr. Loetz bases almost all of his conclusions about the subsequent generation dolls on the express basis of similarity between ideas and unprotectable elements. For example, Mr. Loetz states that the placement of the body landmarks in the subsequent generation dolls in similar to the placement of such landmarks in Bryant's sketches, a conclusion that is both factually wrong and irrelevant. The placement of anatomical features is, as Mr. Loetz admits, relevant to making a doll "look older or younger." Loetz Dec., Ex. B at 7. Elongating the body expresses a different idea about the "age and gender," since "[a]s the human body grows from child to adult, the body proportions lengthen from top to bottom." Id. Just as "slightly larger heads, eyes and lips; slightly smaller noses and waists; and slightly longer limbs" are elements that necessarily result from the idea of a young, fashion forward female, so too does the idea require "proportionally shorter bodies." A body with compressed proportions is not a protectable element of Bryant's sketches and Mr. Loetz admits as much.
Id. at 11 (emphasis added).
Each of the endless variations of facial features to which Mr. Loetz refers can express a different idea. Working within Mr. Loetz's "cute baby" to "evil witch" spectrum, different variations of facial features can express different ideas—e.g., a cute witch, an evil baby, a toddler, or an old woman. Mr. Loetz concedes, however, that the compacted features in Bryant's drawings were necessary to "create a pleasing attractive look," which is an unprotectable idea that is distinct from the other ideas expressed by the "endless variations" in the placement of facial features discussed in Mr. Loetz's report. Allowing Mattel to prevent others from depicting the placement of facial features that necessarily result from the idea of a young, fashion forward female with exaggerated features is tantamount to giving Mattel a monopoly over the idea itself. See Am. Ninth Circuit Op. at 17341 ("[F]ashion dolls that look like Patty and Selma Bouvier don't express the idea behind Bratz.").
Mr. Loetz also argues that the dolls are substantially similar to specific facial features found in Bryant's sketches, like lips that curve, "the look of a girl who has too much eye makeup on," oversized almond eyes, and angular eyebrows. Loetz Dec., Ex. B at 11-12. But these unoriginal features are all unprotectable elements of Bryant's work, because they belong to the underlying idea of a young, fashion-forward doll with exaggerated features and a bratty look or attitude. Cf. Ideal Toy Corp. v. Sayco Doll Corp., 302 F.2d 623, 627 (2d Cir.1962) (Clark, J., dissenting) ("But is it so that one gets a 56-year copyright in normal arms and legs of a doll or in a hidden smile? This gives plaintiff a destructive power against competitors of unexplored extent. For a grin or a smirk in their otherwise dissimilar product may turn out to make them accountable as infringers."). The features discussed by Mr. Loetz (e.g., a heavily made-up young female) are unprotectable ideas and, for the reasons discussed below, the subsequent generation dolls are not substantially similar to Bryant's particular expression of these ideas. See Goldberger Doll Mfg. Co., 365 F.3d at 136 ("Mattel's copyright will protect its own particularized expression" of the idea of a certain type of doll face composed of "[a]n upturned nose, bow lips, and wide eyes").
The vast majority of Mr. Loetz's actual comparisons (see Loetz Dec., Ex. B, Ex. 1-25) concern the first generation of Bratz dolls. Those comparisons that concern the subsequent generation Bratz dolls reveal the lack of similarity between the dolls and the protectable elements of Bryant's sketches. For example, exhibit 20 to Mr. Loetz's report includes a side-by-side comparison of the head of a subsequent generation Cloe doll with Bryant's Lupe sketch. Both the doll and sketch share large eyes, large parted lips, light colored hair, and heavily made up eyes, none of which are protectable elements. The particularized expression of each of these elements is not similar, let alone substantially similar: the lips are of a different shape and color, the eyes rounder, the eye lashes more numerous and spaced
Mattel attempts to remedy these defects by pointing to Mr. Loetz's conclusion that the dolls have "a visual consistency from Carter Bryant's sketches, to the first wave of dolls, and through the later waves of Bratz dolls, even including the most recent 2010 Bratz dolls." Mattel Mot. at 40. Mr. Loetz's observation may have be relevant to an intrinsic examination, which involves "mere subjective judgment as to whether two  works are or are not similar." Shaw, 919 F.2d at 1357. Since "objective manifestations of creativity" must be examined in the "extrinsic" test, the absence of any similarity in protectable expression, from fashions, to hair styles, to facial features, make up, and the eyes, means that Mattel cannot show a genuine issue of material fact on the extrinsic test for the subsequent generation Bratz dolls.
Nevertheless, there are two subsequent generation dolls as to which an "indicia of sufficient disagreement concerning the substantial similarity of [the] two works" remains. Swirsky v. Carey, 376 F.3d 841, 846 (9th Cir.2004) (internal citations omitted). First, a reasonable fact-finder could conclude that Ooh La La Cloe is substantially similar to the protectable elements of the sketch depicted in TX 5.051, TX 11810.001. Ooh La La Cloe likes to shop til she drops at "the world's most chic boutiques" and wears a fashion ensemble that resembles the ensemble depicted in the sketches: a plaid, short, A-line skirt with a ribbon around it; a midriff-baring, slightly scoop-necked shift worn underneath a cropped jacket with a flared collar, chest-level pockets, and exposed stitching; (differently adorned and shaped) knee-high boots; and a distinctively-shaped, pleated, somewhat floppy hat that falls to the middle of the forehead and tilts to one side in a loose manner. Second, a reasonable fact-finder could conclude that Formal Funk Dana is substantially similar to protectable elements of TX 3-4. Formal Funk Dana is dressed for the ball and, like the doll in the sketch, wears a midriff-baring, two-pieced gown that is cinched at the waist with a bow, a sequined top held up by two thin shoulder straps, and, to finish her look, a beaded, dangling, choker and drop-earrings, as well as a triangle, sequined tiara.
For the foregoing reasons, MGA's Motion is granted as to all subsequent generation Bratz dolls with the exception of Ooh La La Cloe and Formal Funk Dana.
C. Lost Opportunity Damages
MGA argues that Mattel should be precluded from recovering damages that flowed from a speculative lost opportunity to exploit the Bratz creative works. The Copyright Act provides for the recovery of "actual damages" and "wrongful profits." Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 707 (9th Cir.2004).
Other than asserting in conclusory fashion that Mattel is precluded from recovering "infringer's profits against MGA," MGA does not meaningfully challenge Mattel's ability to recover "wrongfully obtained profits resulting from the infringement." Polar Bear, 384 F.3d at 707. MGA's challenge is limited to the actual damages that Mattel can recover from MGA under a lost opportunity theory. To the extent Mattel intends to rely upon such a theory at trial, there is a genuine issue of material fact as to whether Mattel would have exercised the opportunity to
III. Misappropriation of Trade Secrets
Mattel's third counter-claim seeks to hold MGA, MGA Mexico, Larian and Machado liable for misappropriating Mattel's trade secrets. Mattel alleges the illegal acquisition, use and disclosure of its trade secret materials, which include "documents, materials, designs, names, and other information stolen by Machado, Trueba, Vargas, Brisbois, Castilla, Cooney, Contreras, Brawer, other former Mattel employees, and other persons acting for, on behalf of or at the direction of MGA and/or Larian." 4AAC ¶ 134.
California's Uniform Trade Secrets Act proscribes the improper disclosure, acquisition or use of a trade secret. Cal. Civ. Code § 3426.1. The term "trade secret" is defined by the Act as:
Id., § 3426.1(d).
Information derives independent economic value from not being generally known when its secrecy "provides a business with a `substantial business advantage.'" Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 1522, 66 Cal.Rptr.2d 731 (1997) (quoting Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal.App.3d 458, 465, 151 Cal.Rptr. 118 (1978)). Both parties request broad summary judgment rulings on the issue of whether Mattel's alleged trade secrets derived independent economic value from not being generally known. The parties' briefs failed to discuss each alleged trade secret with particularity, but the Court nevertheless proceeds to analyze Mattel's counter-claim by considering the evidence as to each trade secret. For the reasons that follow, the Court finds genuine issues of material fact as to the independent economic value that the vast majority of Mattel's alleged trade secrets derived from not being generally known.
The determination of whether information is the subject of efforts that are reasonable under the circumstances to maintain its secrecy is fact specific. See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 176-77 (7th Cir. 1991). It is relevant whether an employer "required its employees to sign confidentiality agreements respecting its trade secrets." See MAI Sys. Corp. v. Peak Comp., Inc., 991 F.2d 511, 521 (9th Cir. 1993). However, an employer's vague descriptions of exactly what it is that constitutes a trade secret renders the confidentiality agreement largely meaningless. Moreover, an employer's failure to mark documents as confidential or trade secret "precludes in many cases trade secret protection for those materials." Gemisys Corp. v. Phoenix Am., Inc., 186 F.R.D. 551, 559 (N.D.Cal.1999) (citing Jensen v. Redevelopment Agency of Sandy City, 998 F.2d 1550, 1557 (10th Cir.1993)). At the same time, it makes no sense to hold, as a matter of law, that the failure to mark documents as confidential precludes a finding of reasonable efforts, since the very employee directed to create and mark as confidential the trade secret may be the individual who later misappropriates it. On the basis of these principles, the Court finds genuine issues of material fact as to whether Mattel took reasonable efforts to maintain the secrecy of its trade secret materials. Although Mattel conducted extensive
Mattel claims that the Bratz fashion doll concept is a trade secret, to which Mattel claims ownership under the assignment clause of the Inventions Agreement. The concept includes the group name Bratz, the four doll names Jade, Hallidae, Lupe, and Ze, as well as the doll designs, fashions, themes, and marketing slogans in Bryant's pitch book. It is undisputed that Bryant disclosed the Bratz concept to MGA and shared his pitch book and concept sculpts with MGA while he was still employed by Mattel. (Bryant Tr. 2481:18-2482:5.) It is also undisputed that the dolls eventually released to market by MGA used the names Bratz and Jade.
1. MGA's Procedural Objection
On the grounds that a trade secret counter-claim predicated upon the acquisition, disclosure, and use of the Bratz concept implicated phase 1 issues, the Court refused to allow Mattel to allege the Bratz concept was a trade secret until the Ninth Circuit ruled on MGA's appeal from the post-phase 1 equitable relief. Following the Ninth Circuit ruling, Mattel timely moved to confirm the pendency of a trade secret misappropriation counter-claim predicated upon the disclosure, acquisition, and use of the Bratz fashion doll concept. On the basis of extensive briefing and oral argument, the Court granted Mattel's request. MGA "reiterates its objection to amendment of Mattel's pleading," and claims to have suffered prejudice as a result of Mattel's "change [in] legal theory," which MGA claims "violated the [Ninth Circuit's] mandate." (MGA MSJ at 25 & MGA Reply at n. 2.)
MGA's request for reconsideration of the two-month old order granting Mattel's motion to confirm is denied as untimely. United States v. Comprehensive Drug Testing, Inc., 473 F.3d 915, 928-29 (9th Cir.2006). MGA's request for reconsideration is also denied because no "new material facts or a change of law occurring after the time" of the court's order compel a different outcome. Local Rule 7-18. To the contrary, the Court has since granted MGA a new trial on all phase 1 issues, eliminating the potential that Mattel's Bratz trade secret counter-claim will undermine the phase 1 jury's findings.
MGA's arguments are not just procedurally defective but predicated upon a paranoid misreading of trade secret law. MGA is specifically concerned that identifying the Bratz concept as a trade secret allows Mattel to (1) lose the contractual assignment issues discussed above and still capture the Bratz line; and (2) avoid the supersessive effect of California's Uniform Trade Secret Act. Neither concern is valid.
Mattel cannot prevail on a trade secret misappropriation counter-claim predicated upon the acquisition, disclosure, or use of the Bratz concept unless it proves it owned the concept. See Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc., 160 Cal.App.4th 288, 297, 72 Cal.Rptr.3d 600 (2008) ("[A] prima facie claim for misappropriation of trade secrets `requires the plaintiff to demonstrate [that it] owned [the] trade secret'") (citation omitted).
MGA commits a similar error when it argues that Mattel's dilatory identification of the Bratz and Jade names as trade secrets prevented MGA from arguing during phase 1 that the Uniform Trade Secrets Act superseded the constructive trust or Mattel's conversion claim. An allegation of trade secret misappropriation is not a prerequisite to UTSA supersession. (Dkt. 8705 at 5.) To the extent the formal assertion of a trade secret misappropriation allegation predicated upon the acquisition, disclosure, and use of the Bratz concept reminded MGA to argue that UTSA supersedes Mattel's claim(s), MGA may have actually benefitted from Mattel's identification of the Bratz concept as a trade secret.
MGA also argues that Mattel's identification of the Bratz concept as a trade secret is untimely. As discussed in greater depth in the Court's Order granting Mattel's motion to confirm, the parties' have long operated under the understanding that Mattel's trade secret misappropriation counter-claim encompassed the Bratz and Jade names. MGA's counsel remarked at a deposition in early 2010:
(Dkt. 8705 at 3-4.)
Finally, MGA claims that it "continue[s] to dispute that the AAC contains a Bratz and Jade trade secret misappropriation claim," noting that the Court never ruled on Mattel's request to formally amend its pleading to expressly allege the misappropriation of the Bratz and Jade doll names. (MGA MSJ at 61 n. 10.) Mattel's failure to expressly allege the predicate facts for each of its counter-claims is unremarkable; the parties have long accepted that each other's pleadings need not specifically enumerate all the factual predicates for each claim. For example, MGA's claim for trade dress infringement does not identify the specific trade dress allegedly infringed by Mattel, which MGA only definitively identified a few months ago, more than five years after filing its Complaint. Mattel's request for leave to amend was immaterial and irrelevant to its motion to confirm, and the Court's failure to rule on Mattel's request does not undermine the force of its Order granting the motion to confirm.
2. The Bratz Concept as a Trade Secret
MGA argues that, even assuming Bryant's Inventions Agreement assigned to Mattel some right, title, and interest in the idea for the Bratz fashion doll concept, Bryant's disclosure and MGA's acquisition and use of those doll names did not constitute misappropriation because a doll concept and doll names are not trade secrets.
See Declaration of Richard DeAnda, Ex. A.
MGA argues that a product name or concept lacks independent economic value from the product with which it is associated, but this is a chicken and egg dilemma appropriate for resolution by a fact-finder. MGA's own witness, and a key member of the Bratz team, previously recognized that "a toy manufacturer's unreleased toy concepts... are among its most highly valuable trade secrets." Declaration of Paula Garcia in support of Carter Bryant and MGA's Motion for Clarification (Zeller Dec., Ex. 13) 4. Larian similarly conceded that MGA considered a product name to be a trade secret while the product was still in development. Deposition of Isaac Larian, Vol. VII, dated January 20, 2010 (Buchakjian Dec., Ex. 74), at 1799:5-15. A reasonable fact-finder could certainly conclude that the Bratz concept, including the names Bratz and Jade, derived no independent economic value from not being generally known. However, MGA's failure to cite any evidence supportive of its position, as well as the wealth of evidence discussing the value independently generated by doll concepts in the toy industry, precludes the entry of summary judgment.
MGA also argues that the easy accessibility of the names Bratz and Jade (both are words that can be found in the dictionary) means the names lack novelty and therefore aren't trade secrets. But Mattel does not allege that the words Bratz and Jade are trade secrets in a vacuum just as the developer of a formula can't claim that the numbers and variables that compose the formula are trade secrets. O2 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., 420 F.Supp.2d 1070, 1089-1090 (N.D.Cal. 2006) ("It does not matter if a portion of the trade secret is generally known, or even that every individual portion of the trade secret is generally known, so long as the combination of all such information is not generally known."). Mattel argues that doll names Bratz and Jade are novel—an argument MGA does not challenge with, for example, evidence that any doll sold in the course of toy history used the name Bratz or Jade.
MGA instead responds that treating easily discoverable product ideas as trade secrets will incentivize Mattel (or any other corporation) to "giv[e] each of its employees a dictionary and inform them that every name has been or will be considered
MGA's arguments are better addressed to a fact-finder tasked with determining whether the doll names Bratz and Jade qualify as trade secrets; in particular, whether the names derive independent value from not being generally known. Though MGA challenges this basis for Mattel's counter-claim, it cites no material evidence to aid the Court's evaluation of the issue.
B. Misappropriation of Other Mattel Information
Due to the commercial success of the Bratz dolls, MGA expanded its corporate operations between 2001 and 2006. Part of MGA's expansion involved the recruitment of employees from Mattel. Mattel's third counter-claim alleges that MGA should be held liable for alleged acts of misappropriation committed by nine of these former Mattel employees, three of whom—Machado, Mariana Trueba, and Pablo Vargas—were recruited away from Mattel Servicios, S.A. (Mattel Mexico's subsidiary) to be founding members of MGA Mexico. Machado is also a named counter-defendant to this counter-claim. Mattel, MGA, and Machado move for summary judgment on various elements of this counter-claim.
1. Ron Brawer
Former Tyco Toys, Inc. employee Ron Brawer ("Brawer") was retained when Mattel acquired Tyco in 1997. Between 1997 and his September 17, 2004 resignation, Brawer held the posts of Marketing Director and Senior Vice President/General Manager, in which he directed teams of employees who worked with Mattel's retailer accounts. MGA recruited him away from Mattel with a competitive salary package but, more importantly, equity in MGA in anticipation of an Initial Public Offering. Mattel responded by escorting Brawer from the premises about 20 minutes after he tendered his letter of resignation. Deposition of Ron Brawer, dated February 5, 2008, Vol. I, at 127:11-24; see also Ex. 4252 to MGA MSJ. Mattel also directed a team of private investigators to shadow Brawer, Brawer's wife, and Brawer's young children, whose activities the investigators recorded via videotape and shared with Mattel's legal department.
Brawer attempted to re-negotiate Mattel's confidentiality agreements prior to his departure, and even before he accepted an offer with MGA. For example, in response to a March 5, 2004 request from the Director of Barbie Brands that all Mattel executives sign a revised Code of Conduct, (Webster Dec., Ex. 487), Brawer complained that "[t]here is one section of the document that contains new and fairly broad language" regarding confidentiality obligations, and expressed an intent to subject the language to an outside review (id., Ex. 488). On August 13, 2004, and while his employment negotiations with MGA were ongoing (see id., Ex. 480),
Brawer's September 17, 2004 employment agreement with MGA also emphasized that he keep his contractual obligations to Mattel. (Ex. 4240 to MGA MSJ.) MGA reminded Brawer to "not retain any of Mattel's property or confidential and proprietary information ... nor should you use or disclose Mattel's property and/or confidential and proprietary information in connection with your employment at MGA." (Id.) Mattel alleges that Brawer disregarded the instructions from both Mattel and MGA by disclosing Mattel's "ideas, designs, and conception for a fashion doll theme" called "Swappin' Styles" that MGA thereafter used for a line of Bratz dolls. (Webster Dec., Ex. 305 at 189.)
There is a genuine issue of material fact as to whether Mattel's unreleased product idea for a line of dolls with interchangeable heads and fashions derived independent value from not being generally known to the public. MGA moves for summary judgment on this issue but cites no evidence or law, resting its argument on two appellate cases that discuss the parties' burdens on a motion for summary judgment. (MGA SF ¶ 102(d) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) and Devereaux v. Abbey, 263 F.3d 1070 (9th Cir.2001) (en banc)).) However, as discussed earlier, one of MGA's employees submitted a declaration in this lawsuit claiming that "a toy manufacturer's unreleased toy concepts... are among its most valuable trade secrets." Garcia Dec. ¶ 4. The disclosure of certain forthcoming product lines well before they hit the market, especially in the toy industry in which the product concept arguably requires more effort than its execution, may prevent a manufacturer from enjoying the potential benefits of primacy. See Sikes v. McGraw-Edison Co., 665 F.2d 731, 733-34 (5th Cir.), cert. denied, 458 U.S. 1108, 102 S.Ct. 3488, 73 L.Ed.2d 1369 (1982); but see Richter v. Westab, Inc., 529 F.2d 896, 900 (6th Cir. 1976) (holding that any product idea that would be obvious upon the product's release is not a trade secret); see also Hudson Hotels Corp. v. Choice Hotels Intern., 995 F.2d 1173, 1178 (2d Cir.1993) (comparing cases and noting that "[i]n the pre-marketing stage, the question whether a marketing concept or new product idea can constitute a trade secret is murkier."). Not all product plans derive independent economic value from not being generally known to the public, but some may. Given MGA's failure to present any evidence as to the economic value Mattel obtained from keeping MyScene Swappin' Styles secret prior to its release,
There is also a genuine issue of material fact as to whether the MyScene Swappin' Styles product plan was subject to reasonable efforts under the circumstances to maintain its secrecy. MGA argues that Mattel failed to either inform Brawer of his obligation to not misappropriate information after he resigned or warn MGA about Brawer's potential misappropriation. MGA UF ¶ 102(c). However, Mattel's efforts to bind and remind its employees to keep business information confidential is well documented. See, e.g., Declaration of Kimberly Graham in support of Mattel's MSJ ¶¶ 3-25 (discussing efforts to encourage employee secrecy from beginning to end of employment relationship). Brawer acknowledged receiving a notice reminding him of these obligations while he was in the process of participating in company-wide discussions about the release of MyScene Swappin' Styles. (Webster Dec., Ex. 488.) On the other hand, Mattel's company-wide circulars did not discriminate between categories of business information or illustrate confidential information. See, e.g., Graham Dec., Ex. 16. Neither Mattel nor MGA cites any evidence specific to Mattel's efforts to maintain the secrecy of Swappin' Styles—e.g., Mattel's communications with retailers.
Finally, there is a genuine issue of material fact as to whether Brawer disclosed and MGA improperly acquired knowledge about Mattel's MyScene Swappin' Styles doll. On the one hand, MGA deliberately created a line of dolls sporting interchangeable heads and clothing on the heels of MyScene Swappin' Styles' release, acting with urgency and with apparent knowledge of Swappin' Styles' impending release to market. See Webster Dec., Ex. 8 (stating that project for interchangeable heads "back on" in apparent bid to beat Mattel to market). On the other hand, MGA's 30(b)(6) designee testified that the company had long planned for the release of a product with interchangeable heads—i.e., the fact that it was released at the same time as Mattel's product was purely coincidental and not the consequence of any improperly acquired knowledge of Mattel's upcoming product lines. MGA 30(b)(6) Depo. Vol. XXV, dated October 4, 2010, at 6123. The same witness, however, claimed that the genesis for this product could be found in Bryant's portfolio, (id. at 6123:4-6), even though Bryant's portfolio only discusses interchangeable fashions, and not heads. Since a reasonable fact-finder could either conclude that the evidence shows improper acquisition, disclosure and/or use or that it doesn't, summary judgment cannot be granted on this element of Mattel's third counter-claim.
2. Nick Contreras
Nick Contreras ("Contreras") served as a Manager on Mattel's Customer Business Team for a retailer named Target. He started at Mattel in 1994, earning a salary of approximately $2,760.00 per month. (Ex. 1913 to MGA MSJ.) Ten years later, and after ascending Mattel's hierarchy, he
Contreras resigned from Mattel by a letter dated October 29, 2004 and was escorted out of the building. (Ex. 1917 to MGA MSJ.) During a short break in employment before he started working at MGA, Contreras allegedly met with Yoon Jung Kim ("Susan Kim"), who worked for him at Mattel, and has since left Mattel to pursue a graduate degree in business administration. (Deposition of Susan Kim, dated January 18, 2010, at 44-45.) Kim claims that Contreras "indicated that he would want me to come and work for him at MGA, and he  also  asked me to take a thumb drive  that he gave me at this meeting and download certain files from our network for his use for what he said was formatting reasons." Id. at 43-44; see also Declaration of Susan Kim ¶ 4 (same). Contreras denies ever asking Kim to download documents or even recruiting Kim to join MGA, although an email sent by Brawer to Larian while MGA was recruiting Contreras predicted that "he will want to bring an analyst who works for him named Susan Kim (she is fantastic)... a real work horse who gets the numbers right." (Webster Dec., Ex. 191.)
Even though there is an issue of fact as to whether Contreras induced Kim to download materials from Mattel's servers, that fact is immaterial to Mattel's third counter-claim. Although Kim claims she initially agreed to download the requested materials, she ultimately "didn't think it was the right thing to do, and  felt very awkward about the request." Kim Depo. at 64:17-19. The undisputed evidence establishes that, whether or not Contreras intended to misappropriate Mattel trade secrets, his alleged efforts failed.
Mattel concedes that Contreras did not misappropriate trade secrets, but maintains that Contreras' "attempt shows that the other multiple thefts by persons departing for MGA were deliberately orchestrated by MGA, rather than mere coincidence as MGA would have it." (Mattel Opp. at 15.) While Mattel's arguments about the probative value of Contreras' conduct may certainly prove interesting in the context of a motion in limine to exclude evidence of the conduct, they have no bearing on whether Mattel's third counter-claim can arise out of conduct that Mattel concedes does not give rise to liability under UTSA. Mattel cannot ignore that its operative pleading defines the allegedly stolen trade secret material to include "documents, materials, designs, names, and other information stolen by ... Contreras." 4AAC ¶ 134. Mattel now concedes that it can prove no portion of this allegation and MGA's motion is accordingly granted as to Mattel's third counter-claim to the extent predicated upon Contreras' conduct.
3. Jorge Castilla
Jorge Castilla ("Castilla") was Mattel's Planning Specialist for Operations, Planning
Mattel alleges that seven categories of trade secrets misappropriated by Castilla encompassed his knowledge about Mattel's proprietary processes. Such information may be considered a trade secret because "to afford protection to the employer, the information need not be in writing but may be in the employees' memory." Greenly v. Cooper, 77 Cal.App.3d 382, 392, 143 Cal.Rptr. 514 (1978); see also Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal.App.3d 458, 465, 151 Cal.Rptr. 118 (1978) ("[W]here, in order to do business the employer is forced to impart such select information to certain key employees, the information hardly becomes part of the employees' knowledge which they may freely use at some later time. Rather, it remains the exclusive property of the employer which must be appropriately protected."). The departing employee must "expend their own resources in uncovering the information" learned during their prior employment, instead of riding their prior employer's "coattails." Id. at 465 n. 3, 151 Cal.Rptr. 118.
To prevent employers from using trade secret law as a weapon against employee mobility, California requires that "a party seeking to protect trade secrets  `describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit defendant to ascertain at least the boundaries within which the secret lies.'" Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443, 1453, 125 Cal.Rptr.2d 277 (2002) (quoting Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 253, 67 Cal.Rptr. 19 (1968)). Though a plaintiff need not "spell out the details of the trade secret," it must minimally provide "reasonable notice of the issues which must be met at the time of trial and  provide reasonable guidance in ascertaining the scope of appropriate discovery." Id. at 252-53, 67 Cal.Rptr. 19. For example, a vague claim that a former employee misappropriated "business models and implementations" is insufficient to describe a trade secret with particularity. See, e.g., Farhang v. Indian Institute of Tech., Kharagpur, 2010 WL 2228936, at *14 (N.D.Cal. June 1, 2010). "A plaintiff must do more than just identify a kind of technology and then invite the court to hunt through the details in search of items
Mattel claims that Castilla made away with the information in his head about Mattel's forecasting process, which "ensure[s] the right product is in the right place at the right time, to ensure that inventory costs and supply and days of supply are kept at appropriate levels, and to ensure the right amounts of products are made to fill demand." See Declaration of Laura Owens in Support of Mattel's MSJ ¶¶ 5-39. Though Mattel concedes that its forecasting process has undergone tremendous evolution over the last several decades, it does not identify the specific systems misappropriated by Castilla. Mattel instead claims that Castilla misappropriated information about a process that consists of measuring the market viability of a particular product through customer focus groups, communicating that information to the company's marketing and pricing teams, and attempting to produce the optimal number of goods. Id. ¶¶ 7-15. This vague description of the process does not provide the Court with any basis on which to conclude that the information obtains value from secrecy or was the subject of reasonable efforts to maintain its secrecy. See id. ¶ 10 ("Mattel's forecasting process begins with planning and development of the product line."). As described, the concept of projecting sales through market research and communication within the company is general, intuitive, and without dispute derives no independent economic value from its secrecy. Cf. Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 862, 27 Cal.Rptr.2d 573 (1994) ("[A] stable of trained and talented at-will employees does not constitute an employer's trade secret.").
The second category of trade secrets allegedly misappropriated by Castilla is even more nebulous. Mattel identifies this category as its "demand planning process," which entails, to use Mattel's words, "a series of inputs and outputs." Owens Dec. ¶ 18; see also id. ¶ 19 (same). Mattel does not identify these "inputs and outputs" or explain how this process gives "Mattel insights into how to most efficiently meet demand." See id. Mattel concedes that its demand planning has evolved over time, but does not explain Castilla's specific involvement in the process, or any specific knowledge that Castilla could have gained from the process. This category of trade secret fails for lack of particularity. And there is no genuine issue of material fact that this category of trade secret, as described by Mattel, does not derive economic value from not being generally known, for using "inputs and outputs" to project demand for a manufacturers' products isn't valuable. Cf. Western Medical Consultants, 835 F.Supp. 554, 557 (D.Or.1993) ("An employee may use [knowledge from general know-how, skill and experience] in later competition with a former employer.").
The third category of secrets allegedly misappropriated by Castilla is information concerning "Mattel's Enhanced Sales Forecasting Process." Owens Dec. ¶¶ 22-26. Mattel's witness claims that Mattel enhanced its forecasting process between 2005 and 2006 by "identif[ying]  elements" like "[p]ast quotas, historical marketing, promotional and sales information..., marketing strategy, distribution information, financial target information, availability information, media promotion, feedback from customers, product profiles and history, and historical level of customer support" that helped Mattel meet "the
The fourth category of secrets allegedly misappropriated by Castilla encompasses "Demand Planning and Sales Planning Modules of Mattel's ISIS Computer System," which is defined as "a customized computer system, made up of both software and hardware" that processes "demand signals, sales forecasts, availability and other outputs of the forecasting system" using "mathematical templates, but not algorithms." Owens Dec. ¶¶ 27-28. The Court finds genuine issues of material fact as to whether this category derived independent economic value from not being generally known, was the subject of reasonable efforts to maintain its secrecy, and was misappropriated by MGA and/or Castilla.
The fifth category of secrets allegedly misappropriated by Castilla concerns "Mattel's Manugistics Pilot Program." Owens Dec. ¶¶ 32-33. In 2003, Mattel began testing an off-the-shelf product called Manugistics and "concluded that the new approach was not a good fit" because the algorithm both required data not compiled by Mattel and failed to incorporate data that Mattel considered important. Id. ¶ 33 (listing other concerns). Mattel did not conclude that the product was an objective failure; instead, it believed that the Manugistics software "did not work for Mattel." See id. ¶ 34. Castilla allegedly disclosed to MGA "the elements of [Manugistics] that worked and did not work for Mattel" as well as the "the learnings [sic] that came out of that project." Id. There is, however, a distinction between disclosing the fact that certain elements of Manugistics did or did not work for Mattel, and merely disclosing elements of the program that did or did not work for Mattel. Manugistics is a commercially available program and the elements it measures easy to determine. Cf. IKON Office Solutions v. Am. Office Prods., Inc., 178 F.Supp.2d 1154, 1168 (D.Or.2001) ("Bradley could have gone through the fiction of calling each company to request the names anew, but that exercise would yield no tangible benefit for Ikon"). Mattel argues that it prefers for its former employees to engage in "costly exploration" to software features of which they are already aware. Even if this were cognizable, there is no genuine issue of material fact that identifying Manugistics' features requires neither exploration nor much cost.
The sixth category of trade secret information allegedly misappropriated by Castilla is "Mattel's International Data Warehouse," used to "store and calculate data relating to the business of Mattel's international subsidiaries" and later expanded to include "sales numbers, future and pending orders for product, availability information, SKU-level and other sales forecasts." Owens Dec. ¶ 37. This is nothing more than a data processing mechanism, that Castilla is not alleged to have misappropriated, since the data warehouse itself continues to reside at Mattel. Mattel instead claims that Castilla disclosed trade secrets by enriching MGA's ability to configure and manage sales data in a more efficient way. See id. ¶ 38. Mattel's claim fails to raise a genuine issue
The seventh category of trade secret information allegedly misappropriated by Castilla is information concerning the "OMNI  order management system" purchased and customized by Mattel to assist with "processing, allocating and executing orders." See Mattel's Corrected Responses to MGA's Second Set of Interrogatories, dated October 26, 2010 (Webster Dec., Ex. 305) at 19. Mattel makes no effort to describe the "trade secret" elements of this commercially available product, other than to summarily claim that the system was customizable and customized by Mattel. The fact that Mattel's vague description precludes the Court from effectively determining whether information about the OMNI system derives independent economic value from not being generally known is precisely why California requires that a trade secret by alleged with particularity. Mattel's allegations as to this product fail.
The remaining trade secrets allegedly misappropriated by Castilla and MGA are the documents found on a thumb drive he returned to federal authorities after resigning from Mattel but before joining MGA.
There is a genuine issue of material fact as to whether the documents derived independent economic value from not being generally known to the public. For instance, Mattel's 30(b)(6) designee testified at deposition that "[he] wouldn't consider the fact that Mattel does sale forecasts to be a trade secret." Deposition of Mattel 30(b)(6) Designee, dated December 16, 2009, at 106. However, that very witness continued that "the way in which Mattel does those forecasts may be a trade secret." Id. Mattel's particular method (as found in the documents) may have had some value, due to intense competition between manufacturers for retailer shelf space, as well as retailers' willingness to abandon a manufacturer with deficient forecasting for one with a more accurate ability to deliver the right number of goods at the right time.
There are also genuine issues of material fact as to whether Castilla disclosed the documents to MGA and/or MGA improperly acquired or used the documents on the thumb drive. On the one hand, Castilla returned the thumb drive to federal authorities and claims he had no plan to share the files with MGA. See Declaration of Warrington Parker, Ex. 61. On the other hand, MGA re-hauled its forecasting systems almost immediately after Castilla's arrival, and in significantly less time than it took Mattel, with its greater human resources, to accomplish the same task. The fact-finder should also be allowed to evaluate the credibility of Castilla's claim that he made no other electronic copies of the documents initially taken from Mattel; a representation whose veracity can be called into question by evidence that Castilla obfuscated his initial efforts to download documents from Mattel's servers.
4. Dan Cooney
Dan Cooney ("Cooney") started serving as Mattel's Director of National Accounts for the Toys 'R Us account soon after he was hired for his second stint of employment at the company in January 2004. 4AAC ¶ 82. He accepted a position as MGA's Vice President of Sales, National Accounts (Ex. 2157 to MGA MSJ), and announced his resignation on April 28, 2006. 4AAC ¶ 83. In response, Mattel dispatched a member of its "Global Security" force to pay a visit to Cooney's home and require him to surrender "one large box of files, some loose binders and computer equipment." Id. Unlike Brawer and Contreras, Mattel allowed Cooney to stay on for two weeks after he tendered his resignation, though he was not allowed to perform any work during this period of time. See Deposition of Dan Cooney, dated January 28, 2008, at 183:23-25. Cooney started work at MGA on May 15, 2006. Id. at 184.
Before leaving Mattel, Cooney downloaded some of Mattel's files to a folder called "Dan's Files" located on a personal compact disc owned by Cooney. See id. at 311. He did not transfer the files from the personal compact disc to his
There is a genuine issue of material fact as to whether the formula derived by Cooney derived independent economic value from not being generally known. Independent economic value can be evidenced by "circumstantial evidence of the resources invested in producing the information." Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 923 F.Supp. 1231, 1253 (N.D.Cal.1995). Contrary to MGA's argument, "if reverse engineering is lengthy and expensive, a person who discovers the trade secret through reverse engineering can have a trade secret in the information obtained from reverse engineering." Legis.Com. com. to Civ.Code, § 3426.1; see also Hoffmann-La Roche Inc. v. Yoder, 950 F.Supp. 1348, 1358 (S.D.Ohio 1997) (same under Ohio law). Cooney emailed his Mattel colleagues lamenting the difficulty of cracking the formula. See Compendium of Trade Secrets in Support of MGA MSJ, Ex. 182 ("my brain hurts ... Dave, we may need your brainiac math mind!"). However, the formula may have been derived within three and one half weeks, which may not evidence a lengthy and expensive reverse engineering process. See Cooney Depo. at 79-80 (document was updated between April 4, 2006 and Cooney's departure).
MGA also argues that the formula embedded in the optimization tool lacked economic value because it was flawed. Information about customers' preferences can aid in "securing and retaining their business." Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 205, 246 P.2d 11 (1952) (pre-UTSA case). MGA argues that the partial formula derived by Mattel was worthless because Toys 'R Us was in the process of modifying the overarching Merchant Model Optimization Tool. Mattel's former general manager for the Toys 'R Us account, who supervised Cooney, testified at deposition that Toys 'R Us "kept on grooming the tool" because the tool erred by undervaluing "high-margin products with high turnover but high cubes." See Deposition of Eugene Murtha, dated February 25, 2010, at 157-159. However, he also testified that the evolution of the tool used by Toys 'R Us may have rendered the underlying formula even more valuable since (1) the formula used by Toys 'R Us remained constant through the various iterations of the tool; and/or (2) the formula allowed Mattel to manipulate Toys 'R Us's metrics. See id.
There is also a genuine issue of material fact as to whether MGA acquired the formula using improper means. MGA instructed Cooney not to bring Mattel's confidential information with him to MGA (Ex. 2157 to MGA MSJ) and Cooney testified at deposition that he never discussed the formula with anyone at MGA (Cooney Depo. at 83). However, Cooney testified (somewhat ambiguously) that he may have used the Merchant Model Optimization Tool (and potentially the underlying formula)
There is also a genuine issue of material fact as to whether MGA had knowledge that the acquisition of the formula was improper. Since the credibility of the evidence probative of MGA's knowledge is at issue, summary judgment is not proper on this element of Mattel's counter-claim. For example, Cooney testified that Brawer "was clear that [MGA] didn't want" Cooney to bring Mattel's confidential materials with him. Cooney Depo. at 334:6-7.
There are also genuine issues of material fact as to whether Mattel suffered harm and/or MGA benefitted as a result of the formula's alleged misappropriation. Cooney's former supervisor at Mattel testified that the formula in the Merchant Model Optimization Tool was very valuable to Mattel. Murtha Depo. at 157. Communications between MGA and Toys 'R Us during the relevant time frame suggest the zero-sum nature of Toys 'R Us's relationships with toy manufacturers. See, e.g., Webster Dec., Ex. 193 ("I am not going to give TRU special pricing, exclusives, etc, etc. and have you stick My Scene right in the middle of Bratz"). Viewing this evidence, a reasonable fact-finder could easily conclude that MGA benefitted at Mattel's expense by effectively marshaling the formula embedded in the Merchant Model Optimization Tool. See Stuhlbarg Int'l Sales Co. v. John D. Brush and Co., Inc., 240 F.3d 832, 841 (9th Cir.2001) ("Evidence of threatened loss of prospective customers or goodwill ... supports a finding of the possibility of irreparable harm."). However, a reasonable fact-finder could also conclude that MGA could not meaningfully benefit from a formula derived from a tool that may have been specific to Mattel's business and therefore inapplicable to Mattel's competitors.
5. Machado, Vargas, and Trueba
In late 2003, MGA sought to develop an independent footprint in the
Kuemmerle facilitated a meeting between Machado and Larian at the February 2004 New York Toy Fair. Deposition of Susana Kuemmerle, dated December 8, 2009, at 339. One month later, Larian, Kuemmerle, and MGA Chief Operating Officer Tom Park traveled to Mexico to interview candidates for the contemplated office in Mexico, almost all of whom had been directed to MGA by a professional recruiter that Kuemmerle met through Machado. Id. at 350-51. Larian, Kuemmerle and Park also met with Machado, as well as his Mattel Servicios colleagues Mariana Trueba-Almada ("Trueba") and Pablo Vargas-San Jose ("Vargas") who Machado encouraged to attend the meeting with him. Id. at 349; see also Declaration of Pablo Vargas at 65 (Proctor Dec., Ex. 1). Machado, Trueba, and Vargas corresponded with Kuemmerle in the weeks leading up to their meeting with Larian and Park in Mexico City. Id.
Machado and Vargas prepared a power point presentation to show Larian, Park and Kuemmerle at the meeting in Mexico City. Machado Depo. at 1033. The presentation borrowed images and language from a report prepared for Mattel Mexico's president by another Mattel executive. Compare Isais Dec., Ex. 34 with Isais Dec., Ex. 33. The report was located on a shared Mattel Mexico server to which Machado had access on his work computer; Machado burned the report to a personal compact disc and/or copied the report to a personal thumb drive. Machado Depo. at 1033-1037. The presentation prepared for MGA by Machado and Vargas also incorporated data about the Mexican market prepared by outside vendors with whom Mattel had subscriptions. See Isais Dec., Ex. 33. Machado and Vargas failed to omit the vendors' names, which were located on the bottom left of several of the presentation's slides. Id. Larian watched the presentation and then interviewed the three Mattel Servicios employees at the March 2004 meeting in Mexico City.
On March 19, 2004, Larian sent an email to an email address jointly used by Machado, Vargas, and Trueba with the name plot email@example.com. See Proctor Dec., Ex. 22. Larian's email directed the three individuals to see offer letters for employment (dated March 18, 2004) attached to the email. Id. All three Mattel Servicios employees were offered employment with MGA Mexico at a salary of 8,910 U.S.
Prior to leaving Mattel Servicios for MGA Mexico, Machado, Trueba, and Vargas copied some files from the company's shared servers to personal storage devices. Deposition of Mariana Trueba, dated May 20, 2010, at 230 (stating that she thought the files she downloaded from shared servers would "at some point be useful"); see also Vargas Dec. at 7. Machado collected the storage devices after Trueba and Vargas downloaded and copied files, downloaded the files from the storage devices to his computer, deleted the files from the storage devices, and returned the storage devices to Trueba and Vargas so that they could download more files from the shared servers to which they had access. Machado Depo. at 218-219. Trueba separately emailed Machado files that she received from other Mattel Servicios employees in the weeks leading up to her resignation. See, e.g., Webster Dec., Ex. 287.
All three employees formally resigned from Mattel Servicios on April 19, 2004. See Proctor Dec., Exs. 8-10. The next day Machado emailed Larian from the "plot04" email address stating that "we resigned yesterday and let me tell you `Rome is on fire'. We left the office at 1:30 PM yesterday and since then they have already made 10 changes in the staff, we are driving them crazy!!!," (Proctor Dec., Ex. 11), to which Larian responded "I am in Ny. What is your cell?" Id. On April 23, 2004, Mattel Servicios sent all three employees a post-termination letter in which they would acknowledge receiving a salary from Mattel Servicios and, in relevant part, acknowledge that they "undertook not to  reveal, exploit, reproduce or publish or otherwise disclose confidential information of which I became aware during my work in service of [Mattel Servicios]." See Proctor Dec., Ex. 141. None of the three employees signed and returned the letter to Matttel Servicios. Id.
(a) Choice of Law
Machado and MGA argue that Mexican law governs Mattel and Mattel Mexico's counter-claim for trade secret misappropriation to the extent it arises out of the conduct of Machado, Vargas, and Trueba. Mattel and Mattel Mexico disagree. In cases such as this one, where the Court exercises supplemental jurisdiction over state law claims, the choice of law rules of the forum state apply to those state claims. Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir.1996). The Court accordingly considers California's choice of law framework in determining whether the laws of Mexico or California apply.
California applies a three part "governmental interest" test to choice of law disputes:
Abogados v. AT & T, Inc., 223 F.3d 932, 934 (9th Cir.2000) (citations and internal quotation marks omitted).
"If distinct claims for relief implicate different alignments of interests among the relevant jurisdictions, separate applications of the governmental interest analysis are required." McGhee v. Arabian American Oil Co., 871 F.2d 1412, 1422 (9th Cir.1989). It follows, naturally, that "[u]nder both California and New York conflicts rules, a different determination properly is made for each defendant and each claim." Lombard v. Economic Development Admin. of Puerto Rico, 1995 WL 447651, at *4 (S.D.N.Y. July 27, 1995); see also Boxer v. Gottlieb, 652 F.Supp. 1056, 1062 (S.D.N.Y.1987) ("The issue of which law governs liability must be determined separately for each defendant, since the competing interests involved may differ...."). Since the only conduct alleged to give rise to MGA Mexico and Machado's liability involved the actions of the Mattel Servicios employees, the choice of law analysis for Machado and MGA Mexico is materially different from the choice of law analysis for Larian and MGAE.
Choice of Law Analysis as to Machado and MGA Mexico
The laws of California and Mexico differ as to the liability of both Machado and MGA Mexico for the conduct alleged in Mattel's third counter-claim. Contrary to both counter-defendants' arguments, Mexico recognizes a civil action for trade secret misappropriation. See Damon L. Boyd, Trade Secret Doctrines of the NAFTA Countries, 14 Az. J. Int'l & Comp. L. 879, 883-884 (1997). That cause of action proscribes disclosure of trade secrets without the consent of the "person keeping said secret or the authorized user thereof." Declaration of Hector Calatayud ¶ 9. The Mexican statute does not appear to recognize a claim based on acquisition or use of the wrongfully disclosed trade secret. See id. MGA Mexico is therefore immune from liability under Mexican law, but not California law.
Like any other civil claim not arising out of a breach of contract, Mexico's general statute of limitations requires that a claim for trade secret misappropriation must be brought within two years of the "date in which damages caused by the conduct giving rise to the claim occurred." Dkt. 7869-1 ¶ 5. California, by contrast, requires that a claim for trade secret misappropriation be brought "within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Cal. Civ. Code § 3426.6. Mattel sought leave to file its counter-claim against Machado and MGA Mexico in November 2006, nineteen months after Machado, Trueba and Vargas left Mattel Servicios for MGA Mexico, and Mattel's claim against Machado is therefore untimely under Mexican law. See Dkt. 7869-1 ¶ 5 (conceding "[i]t would be unlikely that Mattel could assert a claim for generic liability in Mexico if the United States case is dismissed").
There is a genuine issue of material fact as to whether a "true conflict" exists between California and Mexico. All of the documents stolen by the three employees were accessed on Mattel Servicios computers. Mattel argues that "possession, not ownership, is the sine qua non of trade secret standing," but, even assuming this is the case, there is a genuine issue of material fact as to whether the documents resided on Mattel's California servers. It's doubtful that the three Mattel Servicios employees had wide-ranging access to Mattel (the parent)'s documents, because
Assuming, arguendo, that both California and Mexico have an genuine interest in the application of their laws, the Court would proceed to determine which forum would be more impaired if its laws were not applied. Several factors are relevant to this determination, including (1) each forum's present commitment to the application of its laws; (2) whether one forum's law is more prevalent; (3) whether each forum's law is the exclusive means of achieving a particular policy goal; and (4) the situs of the injury. Van Winkle v. Allstate Ins. Co., 290 F.Supp.2d 1158, 1166-1167 (C.D.Cal.2003) (collecting cases). There is empirical proof that Mexico is committed to enforcing its trade secrets laws. After discovering the alleged theft of its trade secret materials, Mattel contacted Mexican law enforcement authorities, who have investigated MGA Mexico and Machado. None of the parties have discussed the international prevalence of (1) a statute of limitations that incorporates a discovery rule; and/or (2) liability for acquisition and use of improperly disclosed trade secrets. Neither Mexico nor California appear to have any other laws that relate directly to trade secret misappropriation (indeed, California's statute purports to provide an exclusive remedy for such wrongdoing). And there is a genuine issue of material fact as to the situs of the injury, since the parties do not agree about (1) which Mattel entity owned the documents; (2) whether MGA Mexico or MGA used the documents; and (3) whether the three employees accessed Mattel's El Segundo servers. These are also issues the parties can take up with the fact-finder.
Choice of Law Analysis as to MGAE and Larian
MGA argues that "the Mexico-based trade secret claim fails on choice of law grounds," (Mot. at 70:19-20). However, there is no "Mexico-based trade secret claim"; there is only one counter-claim for trade secret misappropriation. Mattel claims that the acts of former employees located in the U.S., Canada, and Mexico give rise to MGAE and Larian's liability under this counter-claim. Though choice of law determinations may be made on a claim-by-claim basis, McGhee, 871 F.2d at 1422, the Court knows of no California authority for the proposition that different states' laws may apply to different factual predicates of the same claim.
As explained earlier, the laws of California and Mexico are in conflict with respect to the liability of Larian and MGAE for trade secret misappropriation since (1) Mexico does not attach liability to acquisition or use; and (2) Mexico applies a more restrictive statute of limitations. Both Mexico and California have an interest in the application of their laws to this dispute, as Mexico may seek to shield from liability corporations who had no relationship with the possessor of the trade secret information and California has an interest in protecting its residents from non-consensual acquisition and use of their valuable proprietary information. However, California would be more impaired if its laws were not applied to the alleged acts of Larian and MGAE because (1) both are residents of California; (2) most of the alleged thefts and associated correspondence took place in California; and (3) most of the harm alleged in the third counter-claim (which includes the harm felt by the alleged misappropriation of the Bratz concept) was also felt in California. MGAE and Larian offer no argument on any one of these points, as is their burden. See CRS Recovery, Inc. v. Laxton, 600 F.3d 1138, 1142 (9th Cir.2010). The Court accordingly concludes that California law must apply to Mattel's entire third counter-claim against MGAE and Larian.
(b) Genuine Issues of Material Fact
The documents downloaded by Machado, Trueba, and Vargas included a pricing matrix for large dolls, (MGA's Compendium of Trade Secrets, Exs. 201, 202), a pricing comparison for products across years, (id., Ex. 203), plans for Mattel's relationships with retailers in Mexico, (id., Exs. 204, 268, 269), sales and pricing data, (id., Exs. 205, 220, 232, 234, 235, 236, 238, 239, 241, 248, 251, 252, 254, 255, 256, 258, 260, 263, 265, 267, 270), projections for pricing, demand and sales (id., Exs. 206, 257, 259), shipment and sell-through data, (id., Exs. 207-18, 223, 224, 225, 226, 227, 231, 242, 245, 246, 261), reports about the Mexican market that tracked inflation, wages, purchasing patterns, market share, and the number of stores per region, (id., Ex. 219, 233, 237, 240, 243, 249, 264, 266), pictures of Mattel Mexico's products in various Mexican stores, (id., Ex. 221), lists of promotions, (id., Exs. 222, 247, 253), a preliminary "line list" that arranges data on projected volume and quota for a variety of doll products, (id., Ex. 228), sales data sorted by media, (id., Exs. 229, 230), a blank spreadsheet, (id., Ex. 244), and allocations for marketing, (id., Ex. 250, 262). Of these documents, Mattel claims that all but a few were trade secrets.
There is a genuine issue of material fact as to whether Mattel or Mattel Mexico have standing to bring their claims against Machado, Trueba, and Vargas. Assuming without deciding that possession is all that is required to bring a claim for trade secret misappropriation, Mattel doesn't establish possession of all of the alleged trade secrets misappropriated by Machado, Vargas, and Trueba. It relies on circumstantial evidence that the three employees had access to Mattel and Mattel Mexico servers as evidence that Mattel Servicios' documents—and specifically the documents allegedly stolen by the three employees—were also located on those
There are genuine issues of material fact as to whether any of the documents claimed to be trade secrets derived economic value from not being generally known. The pricing information in the documents may have been shared with retailers by Mattel. However, Mattel claims that some elements of these alleged trade secrets were not made available to individuals and entities outside Mattel. See Declaration of Isaias ¶¶ 6, 8. MGA also argues that documents lose value three to four months after their creation. See Kuemmerle Depo. at 66-67. However, as Mattel points out, Kuemmerle's description is over-generalized and inapposite: many of the documents did not describe Mattel Mexico's prior sales, but projected marketing and sales expenditures in advance.
There are also genuine issues of material fact as to whether any of the documents claimed to be trade secrets were the subject of reasonable efforts to maintain secrecy. MGA argues that Mattel did not impose a consistent policy of stamping documents as "confidential." See Deposition of Richard Ibarra at 139. MGA, however, concedes that pricing information was consistently marked confidential, per company policy. See id. Moreover, when deposed, Mattel executives testified that each Mattel subsidiary's employees received specific instruction about the non-disclosure of confidential information. See Graham Decl. ¶ 3. Whether this message was clearly conveyed to Machado, Trueba and Vargas turns on the credibility of those individuals' recollection about the extent of their training, as well as the direct guidance they received about maintaining the confidentiality of documents.
There are also genuine issues of material fact as to whether MGA acquired the documents misappropriated by Machado, Trueba, and Vargas with knowledge that the three departing Mattel Servicios employees had improperly acquired the documents. On the one hand, MGA has disclaimed knowledge of the three employees' thefts; Machado testified that Larian instructed him to not bring documents to MGA Mexico. See Machado Depo. at 363-364.
There are likewise genuine issues of material fact as to whether MGA used the documents misappropriated by Machado, Trueba, and Vargas. MGA cites the deposition testimony of a Mattel Mexico employee who testified that MGA Mexico's promotions were similar to those used within the toy industry as a whole. See Isaias Depo. at 254. However, the documents at issue did more than merely list Mattel Mexico's promotions; they also identified pricing schemes, retailer discounts, shipping quotas, and marketing budgets. MGA has cited to no evidence that MGA Mexico's organizational schemes were created independent of the documents
Finally, there is a genuine issue of material fact as to whether Mattel suffered harm and/or MGA benefitted as a result of Machado, Vargas, and Trueba's alleged misappropriation of trade secret documents. MGA cites to the testimony of two Mattel witnesses who admitted a lack of awareness of any evidence that Mattel suffered harm or MGA benefitted as a result of the alleged misappropriation of trade secret documents. For example, one Mattel witness could not name any customer relationships harmed by the loss of the documents at issue. See Zalzman Depo. at 315-316. The same witness, however, expressed confusion at the question posed by MGA's counsel, which asked the witness to distinguish the harm suffered merely because of MGA Mexico's new ability to sell directly to retailers in the Mexican market from the harm suffered as a result of the alleged theft of Mattel's documents. Id. Though counsel's question is certainly pertinent, a reasonable fact-finder may conclude that MGA Mexico's "direct relationships" with Mexican retailers were developed using the information found in the documents stolen by Machado, Trueba, and Vargas.
MGA raises identical challenges to the misappropriation allegations as to each of the documents downloaded by Machado, Vargas, and Trueba. Mattel similarly relies upon generic assertions about its efforts to maintain the secrecy of its documents. Because the parties' arguments do not specifically address the alleged trade secrets on a document-by-document basis, and the credibility of the scant evidence offered by the parties is at issue, the Court finds summary judgment inappropriate on all grounds.
6. Janine Brisbois
Janine Brisbois ("Brisbois") worked for Mattel Canada, Inc. ("Mattel Canada") in Mississauga, Canada between 1999 and September 2005. See Deposition of Janine Brisbois, Vol. I, dated December 9, 2009, at 36:16-19. On September 23, 2005, Brisbois received a written offer of employment from MGA Canada, with whom she had been corresponding for at least a few weeks. See Brisbois Depo. at 109-110; see also Ex. 6908 to MGA MSJ. Brisbois resigned from Mattel Canada on September 26, 2005 and was immediately escorted from the premises. See Deposition of Steve Totzke at 231:10-232:18. She retained a thumb drive containing files relating to Mattel Canada's business, as well as Brisbois' line of work for Mattel Canada. See Brisbois Depo. at 225:11 to 226:5. When deposed in connection with this lawsuit, she testified that at least some (if not most) of the files on the thumb drive were "work that I was involved with, that you know, that I was proud of, that I put effort into, and I was simply keeping a copy for  my own personal file of work done." Id. at 242.
Mattel identifies twenty one categories of trade secrets that Brisbois and MGA allegedly misappropriated. Mattel's alleged trade secrets include a power point presentation evaluating advertising for
Finally, Mattel alleges that Brisbois disclosed Mattel's mechanism to distribute its products to retailers throughout Canada. After Brisbois joined MGA Canada, the company received an email from a retailer seeking to purchase MGA Canada's product. (Id., Ex. 66). In an email concerning the retailer's request, Brisbois' supervisor asked her to identify a distributor who "would be the best to direct the toy store below to." Id. The email to Brisbois also stated "Janine, I know that Mattel does a much better job at covering the small retailers. What are your thoughts?" Id. Brisbois responded that Mattel
Both parties discuss the documents and information with some generality and with few citations to evidence whose
Another category of documents allegedly misappropriated by Brisbois described Mattel Canada's marketing schemes, including scheduled promotions for Mattel Canada's products. MGA appears to argue that marketing plans are not trade secrets as a matter of law because the marketing strategies were inevitably revealed to the public. However, a reasonable fact-finder could conclude that a particular marketing strategy not generally known to the public gave Mattel Canada a competitive advantage over other retailers who, for example, may not have known of the relative profitability of a marketing campaign that tied product sales to charitable efforts. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1011 n. 15, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984) ("[T]he value of a trade secret lies in the competitive advantage it gives its owner over competitors."). For instance, Brisbois testified at deposition that she retained one of the promotional plans presented to Wal-Mart because "[t]his document represents a lot of my work and effort." Brisbois Depo. at 527. Her "work and effort" wasn't just expended planning the promotion, in which case MGA could plausibly argue that the document was no longer a trade secret at the time Brisbois left Mattel Canada. Instead, as Mattel's witness points out, the promotional documents included "Mattel's confidential analysis of and recommendations for continuing [one promotional] program and confidential POS, shipping, sell-thru and promotional information for specific products." Totzke Dec. ¶ 30. It is for a fact-finder to determine whether the promotional materials had continuing value to Mattel Canada at the time Brisbois left for MGA.
A third category of documents and information allegedly misappropriated by Brisbois concerned Mattel Canada's internal processes, including its organizational structure, its progress reviews, and its distribution network. The economic value derived from the secrecy of Mattel Canada's organizational structure appears to be limited, since Mattel Canada was a public company at the time of Brisbois' departure and its corporate structure was probably well known. However, Mattel has cited evidence to suggest that (1) its Canadian
Id., Ex. 63.
A reasonable fact-finder could likewise conclude that information about Mattel's retailer network derived value from not being generally known. The email exchange preceding Brisbois' disclosure of that information reveals its potential value—when MGA Canada was approached by a retailer interested in purchasing its products, the company found itself caught badly off guard. When asked about Mattel Canada's solution to the same problem, Brisbois revealed her former employer's approach in some detail and with specific reference to the retailers serviced by Mattel Canada's network.
There is also a genuine issue of material fact as to whether Mattel took reasonable efforts to maintain the secrecy of documents and information allegedly misappropriated by Brisbois. MGA argues that Mattel Canada did not uniformly and consistently enforce a policy requiring its employees to mark documents as "confidential." Mattel's witness testified at deposition that Mattel only directed, but did not require, that proprietary information be marked "confidential." See Deposition of Keith Storie, Vol. I, dated December 16, 2009, at 63-64. He also, however, testified that Mattel reminded its employees of their obligation to maintain documents' confidentiality through periodic presentations and circulars. See id. at 64-65. MGA also points to the testimony of a Mattel witness who admitted that some of Mattel's retailers, including Wal-Mart, were "reluctant to sign" nondisclosure agreements. See Deposition of Steve Totzke, Vol. I, dated January 18, 2010, at 94-95. But that testimony concerned the nondisclosure of information about products before their release, while the documents allegedly misappropriated by Brisbois included information (including pricing and marketing schemes and expenditures) that may not have been shared with Mattel Canada's retailers in the first place. Finally, MGA argues that Mattel did not require its employees to encrypt emails that attached trade secret information. See Storie Depo. at 59-60. However, MGA provides no evidence about the "reasonableness" of widespread email encryption; there is no evidence in
There is a genuine issue of material fact as to whether MGA acquired the documents and information allegedly misappropriated by Brisbois with the knowledge that the acquisition was improper. MGA instructed Brisbois to "not retain and  not bring to MGA any of your former employers' or Current employer's property or confidential and proprietary information, including customer-related information." See Ex. 6909 to MGA MSJ. On the other hand, Brisbois' supervisor twice asked Brisbois to share information about Mattel in the months after Brisbois started working for MGA. See, e.g., Compendium of Trade Secrets, Exs. 64, 65.
There is a genuine issue of material fact as to whether MGA used the documents and information allegedly misappropriated by Brisbois. Two Mattel witnesses testified that they lacked knowledge of any specific example of Brisbois disclosing Mattel Canada's information and documents to MGA. See Storie Depo. at 204; Totzke Depo. at 611. However, the email from Brisbois' supervisor requesting more information about Mattel Canada's organizational structure foreshadowed the use of such materials in a meeting with Ron Brawer. See Compendium of Trade Secrets, Ex. 64. And Brisbois admitted to using some of the documents on the thumb drive in connection with her employment at MGA. Brisbois Depo. at 241.
Finally, there are genuine issues of material fact as to whether MGA benefitted and/or Mattel suffered any injury as a result of the alleged misappropriation of documents and information by Brisbois. Mattel's witness was incapable of specifically identifying any injury suffered by the company as a result of Brisbois' alleged misappropriation, though the question posed to the witness was outside the scope of the topics on which he was designated. See Storie Depo. at 200-201. However, another Mattel witness testified that he "observed what was happening with Toys 'R Us and saw [MGA] move into  some TV campaigns before the Barbie TV campaign" about which Brisbois gained knowledge while at Mattel. Totzke Depo. at 405. He testified further that "it certainly was an aggressive late move to tactically mute or block what was a very big initiative for Barbie internally." Id. Neither MGA nor Mattel has cited to any evidence in the record about the extent to which Brisbois was involved in MGA's preemptive TV campaign and/or whether the impetus for the campaign was wrongfully acquired information about Mattel's own promotional strategy. The fact-finder can resolve these disputes on the basis of more specific testimony and an expanded factual record.
C. Disposition as to Third Counter-Claim
For the foregoing reasons, summary judgment is granted in favor of MGA as to those trade secrets abandoned by Mattel, as well as the Castilla and Contreras allegations discussed herein. MGA's request for the application of Mexican law to MGAE and Larian is denied. Mattel, MGA, and Machado's requests for summary judgment are otherwise denied.
IV. Mattel's Other State Law Counter-Claims
Mattel also brings counter-claims for breach of fiduciary duty against Bryant and Machado, aiding and abetting breach of fiduciary duty against MGAE and Larian, breach of duty of loyalty against Bryant and Machado, aiding and abetting breach of duty of loyalty against MGAE and Larian, breach of contract against
A. Supersession by the Uniform Trade Secrets Act
California's Uniform Trade Secrets Act "occupies the field" of common law claims based on the misappropriation of a trade secret. K.C. Multimedia, Inc. v. Bank of America Tech. & Operations, Inc., 171 Cal.App.4th 939, 954, 90 Cal.Rptr.3d 247 (2009). However, the Act does not supersede "(1) contractual remedies, whether or not based upon misappropriation of a trade secret, [and] (2) other civil remedies that are not based upon misappropriation of a trade secret." Cal. Civ.Code § 3426.7(b). The Act's language "implicitly preempts alternative civil remedies based on trade secret misappropriation." K.C. Multimedia, 171 Cal.App.4th at 954, 90 Cal.Rptr.3d 247 (citation omitted). A claim cannot simply depend on a "different theory of liability" to survive the UTSA's supersessive effect. See id. at 957-959 & n. 7, 90 Cal.Rptr.3d 247 (distinguishing rule set forth in Powell Prods., Inc. v. Marks, 948 F.Supp. 1469, 1474 (D.Colo.1996) (allowing a claim based on trade secret misappropriation to survive if the claim "requires an [element]  which is not an element of a misappropriation claim")). The claim must be based on more than "the same nucleus of facts as the misappropriation of trade secrets claim for relief." K.C. Multimedia, 171 Cal. App.4th at 958, 90 Cal.Rptr.3d 247 (quoting Digital Envoy, Inc. v. Google, Inc., 370 F.Supp.2d 1025, 1035 (N.D.Cal.2005)).
Before applying these principles to each of Mattel's counter-claims, the Court must resolve whether California's UTSA supersedes claims based upon the misappropriation of information that does not meet the statutory definition of a trade secret. Mattel argues that California UTSA's savings clause, Cal. Civ.Code § 3426.7(b), expressly excepts from the statute's supersessive ambit those claims not based upon misappropriation of a trade secret, including claims based upon the misappropriation of information that does not qualify as a trade secret. MGA responds that Mattel's approach eviscerates the statute's purpose to "sweep away the adopting states' bewildering web of rules and rationales and replace it with a uniform set of principles for determining when one is—and is not—liable for acquiring, disclosing, or using `information ... of value.'" Silvaco, 184 Cal.App.4th at 239 n. 22, 109 Cal.Rptr.3d 27. The Supreme Court of California has not addressed this issue. Decisions of the California Court of Appeal do not bind this Court, though they may be instructive to applying the law as the California Supreme Court would if presented with these facts. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 663 (9th Cir.1998); Guebara v. Allstate Ins. Co., 237 F.3d 987, 993 (9th Cir.2001).
In Burbank Grease Servs., LLC v. Sokolowski, 294 Wis.2d 274, 717 N.W.2d 781, 788-94 (2006), the court endorsed the argument that Mattel makes here. Interpreting a savings clause that materially differs from the one found in California's UTSA, the court concluded that the UTSA's unambiguous language "leaves available all other remaining civil remedies for the protection of confidential information," rendering the statute's purpose irrelevant. Id. at 788-90.
In Mortgage Specialists, Inc. v. Davey, a dispute between a mortgage brokerage and its former brokers, the court held that New Hampshire's UTSA superseded state common law claims based upon the misappropriation of information, "regardless of whether that information meets the statutory definition of a trade secret." 153 N.H. 764, 904 A.2d 652, 666-668 (2006). The court acknowledged that the UTSA only superseded remedies for a "misappropriation of a trade secret" and thus could be read to leave alone remedies based on the misappropriation of other information. However, the court rejected this construction as ignorant of both "the overall legislative scheme" to make uniform the remedies available as a result of the theft of confidential information and the "purpose of making uniform the law among States that have adopted the UTSA." Id. at 664.
The approach taken by Davey is better aligned with the decisions reached by the two recent California Court of Appeal cases to discuss UTSA's supersessive effect. K.C. Multimedia, for instance, held that UTSA supersedes any claim "based on the same nucleus of facts as the misappropriation of trade secrets claim," even though the superseded claim may seek "something more." 171 Cal.App.4th at 958, 90 Cal.Rptr.3d 247. The court rejected Powell Prods., Inc. v. Marks, in which the court stated that UTSA doesn't supersede a conspiracy claim based on the theft of trade secrets because such a claim "requires an agreement  which is not an element of a misappropriation claim under the UTSA." 948 F.Supp. 1469, 1474 (D.Colo.1996). It's no longer the case in California that a claim for breach of fiduciary or breach of duty of loyalty based upon the misappropriation of trade secrets would survive even though both claims require proof of "additional elements" like a relationship of trust or confidence. See K.C. Multimedia, 171 Cal.App.4th at 960, 90 Cal.Rptr.3d 247. Allowing civil plaintiffs to nevertheless proceed with such claims on the basis of the theft of confidential information that doesn't meet the statutory definition of a trade secret undermines the California Court of Appeal by "alternatively plead[ing] claims with less burdensome requirements of proof." Diamond Power Int'l, Inc. v. Davidson, 540 F.Supp.2d 1322, 1345 (N.D.Ga.2007). Along these lines, a recent California Court of Appeal opinion "emphatically rejected the  suggestion that the uniform act was not intended to preempt `common law conversion claims based on the taking of information that, though not a trade secret, was nonetheless of value to the claimant.'" Silvaco, 184 Cal.App.4th at 239 n. 22, 109 Cal.Rptr.3d 27.
Like both K.C. Multimedia and Silvaco, and unlike Sokolowski, Davey eschewed a pure application of the statute
B. Copyright Act Preemption
The Copyright Act preempts "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright." 17 U.S.C. § 301(a). "The rights protected under the Copyright Act include the rights of reproduction, preparation of derivative works, distribution and display." Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1089 (9th Cir.2005) (citing 17 U.S.C. § 106). The Copyright Act's preemptive ambit does not extend to state law claims that include an "`extra element' that makes the right asserted qualitatively different from those protected under the Copyright Act." Id. (citing Summit Mach. Tool Mfg. v. Victor CNC Sys., 7 F.3d 1434, 1439-40 (9th Cir. 1993)).
For instance, the Copyright Act doesn't preempt Mattel's claim for misappropriation of the Bratz concept because trade secret law protects the secrecy of valuable confidential information "whether or not the material subject to the trade secret is itself copyrightable." Nimmer on Copyright § 1.01[B][h] 1-53; see also S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090 n. 13 (9th Cir.1989); see also Firoozye v. Earthlink Network, 153 F.Supp.2d 1115, 1130 (N.D.Cal.2001) (Copyright Act does not preempt UTSA claim for disclosure and exploitation of trade secrets because that claim "require[s] a status of secrecy, not required for copyright"). MGA complains that such a rule allows Mattel "to avoid limitations inherent in the copyright analysis," but this argument is unconvincing. Mattel cannot copyright a work in the public domain and proceed to restrain others from copying the ideas and unprotectable expression in that work. Once the work is shared with the world, "it enters our minds and becomes ours as well." Alex Kozinski & Christopher Newman, "What's so Fair about Fair Use?," 46 J. Copyright Soc. 529 (1999). But Mattel can still keep its creative works secret either temporarily or permanently in order to regulate their use. See id. ("To this I say: It's your creation if you keep it secret."). It is this right that trade secret law seeks to vindicate. Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 847-48 (10th Cir.1993) (finding a copyright claim for wrongful use of a computer program does not preempt trade secret claim for misappropriation where defendant gained access to the program through plaintiff's employee who breached his duty to maintain secrecy).
C. Breach of Fiduciary Duty and Aiding and Abetting Breach of Fiduciary Duty
Mattel alleges that MGA and Larian aided and abetted breaches of fiduciary duty committed by Bryant, Machado, Brawer, Trueba, Vargas, Castilla, Contreras, and Cooney. Mattel's separate counter-claim for breach of fiduciary duty only names Machado and Bryant as counter-defendants.
UTSA supersedes both the breach of fiduciary duty and aiding and abetting breach of fiduciary duty counter-claims in their entirety. Both counter-claims also lack merit to the extent they are based upon the conduct of Machado, Vargas, and Trueba, none of whom owed a fiduciary duty to either Mattel, Inc. or Mattel Mexico.
1. Bryant, Castilla, Contreras, Cooney
"[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law." Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 221, 197 Cal.Rptr. 783, 673 P.2d 660 (1983). Mattel concedes that Castilla, Contreras, Cooney, and Bryant did not enter into relationships which imposed fiduciary relationships as a matter of law. Mattel instead argues that its four former employees undertook fiduciary obligations when they signed Confidential Information and Inventions Agreements, which imposed "duties of confidentiality" and required the employees to "accept  position[s] of trust" with Mattel. See Proctor Dec., Ex. 96 (Castilla Inventions Agreement unsigned by Mattel); id., Ex. 97 (Cooney Inventions Agreement); id., Ex. 124 (Bryant Inventions Agreement); id., Ex. 174 (Contreras Inventions Agreement). These duties of confidentiality and positions of trust were imposed by identical sub-sections of the employment agreements:
See Proctor Dec., Ex. 96 (Castilla Inventions Agreement unsigned by Mattel); id., Ex. 97 (Cooney Inventions Agreement); id., Ex. 124 (Bryant Inventions Agreement); id., Ex. 174 (Contreras Inventions Agreement).
Any fiduciary duty imposed by the agreement was limited to the employees' obligation to maintain the confidentiality of "proprietary information," the definition of which is identical to the definition of a "trade secret" under the UTSA. Compare id. ¶ 1(b) with Cal. Civ.Code § 3426.1(d); cf. Van de Kamp v. Bank of America, 204 Cal.App.3d 819, 860, 251 Cal.Rptr. 530 (1988) (scope of trust relationship defined by the parties' agreement); Chipser v. Kohlmeyer & Co., 600 F.2d 1061, 1066-67 (5th Cir.1979); Grynberg v. Dome Petroleum Corp., 599 N.W.2d 261, 267 (N.D. 1999) ("The existence and scope of a fiduciary duty depends upon the language of the parties' agreement."). Mattel's counter-claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty—to the extent predicated upon the conduct of Bryant, Castilla, Contreras, and Cooney—are by necessity based upon nothing more than the misappropriation of trade secret information. For MGAE and Larian to aid and abet this conduct, the two counter-defendants would have had to provide "substantial assistance or encouragement" to the departing employees' misappropriation of trade secrets, which Mattel elsewhere argues is a basis for holding MGAE and Larian liable for trade secret misappropriation. Mattel's Opp'n to MGA MSJ at 70 (arguing that principles of ratification and agency give rise to MGA's liability for trade secret misappropriation committed by departing Mattel employees). As a result, Mattel's counter-claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty are superseded to the extent predicated upon the conduct of Bryant, Castilla, Contreras, and Cooney.
2. Remaining Employees
UTSA also supersedes the fiduciary duty counter-claims to the extent predicated upon the conduct of Machado, Vargas, Trueba, and Brawer. There is no genuine issue of material fact as to whether Brawer, Machado, Vargas, and Trueba engaged in any misconduct other than the misappropriation of Mattel's confidential information and Mattel does not allege otherwise. See 4AAC ¶ 67. Mattel attempts to re-characterize the thefts as "working for a competitor" and "acting with disloyalty" but these allegations attach new labels to the same nucleus of facts upon which Mattel's third counter-claim is based. See K.C. Multimedia, 171 Cal.App.4th at 960, 90 Cal.Rptr.3d 247. The UTSA supersedes claims based on the misappropriation of information. Mattel cannot separately recover for breach of fiduciary duty or aiding and abetting breach of fiduciary duty.
Even if UTSA did not supersede claims based on the misappropriation of information that does not meet the statutory definition of a trade secret, Mattel has pled away the ability to bring such a claim. Mattel identifies its trade secrets as "the documents, materials, designs, names, and other information stolen by Machado, Trueba, Vargas, Brisbois, Castilla, Cooney, Contreras, Brawer ... including but not limited to ... the confidential information stolen in the United States, Mexico and Canada." 4AAC ¶ 134 (emphasis added). Mattel's definition of "trade secrets" does not except any of the documents or information
Nor could Mattel predicate its fiduciary duty counter-claims on any conduct unrelated to the misappropriation of information, at least as to Machado, Trueba, and Vargas.
Machado, Vargas, and Trueba were employed by Mattel Servicios, a Mexican company. Webster Dec., Ex. 421 (company name is "Mattel Mexico Services"); Webster Dec., Ex. 321 (organizational chart for "Mexico"). Unlike California, Mexico does not recognize common law claims for breach of fiduciary duty or aiding and abetting breach of fiduciary duty, though such obligations may be assumed by contract and enforced through a claim for breach of contract. Calatayud Dec. ¶¶ 16-17. However, this isn't a "true conflict" of law, because only Mexico has an interest in the obligations that flow between a Mexican corporation and its Mexican-resident employees. Thus, none of the three employees owed a fiduciary duty to Mattel Servicios (or Mattel Mexico) by operation of law. Moreover, even if either California law applied or Mexico recognized common law fiduciary obligations arising through employment, all three employees worked for Mattel Servicios, which is not a party to this lawsuit, and whose rights neither Mattel nor Mattel Mexico may enforce. Fed.R.Civ.P. 17(a).
Mattel nevertheless argues that Machado, Vargas, and Trueba assumed fiduciary obligations to Mattel and Mattel Mexico through agreement. One undertakes a fiduciary obligation when he voluntarily accepts another party's trust and confidence. Mass. Eye and Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 241 (1st Cir.2005). However, since (as Mattel concedes) any fiduciary obligation assumed by the three Mattel Servicios employees related to their "access and exposure to Mattel's confidential information," Mattel's fiduciary duty counter-claims are necessarily based upon the misappropriation of Mattel's confidential information, whether through unauthorized acquisition, disclosure, or use.
The first agreement cited by Mattel is entitled "Individual Employment Contract" and purports to memorialize an employment relationship with Mattel Servicios—the "employer" under the agreement. Webster Dec., Ex. 99 (Machado); Proctor Dec., Ex. 233 (Trueba); and Proctor Dec., Ex. 98 (Vargas). Machado, Vargas, and Trueba agreed to "not  disclose any of the aspects of [Mattel Servicios'] business and not to provide any information on the systems or activities of any kind to third parties." Id. at 2316. The second agreement is a Mattel "Conflict of Interest Questionnaire" that only Machado and
Any fiduciary obligations imposed by these agreements was an obligation not to disclose the Mattel's confidential information. Mattel's counter-claim for breach of fiduciary duty against Machado as well as its allegation that MGAE and Larian aided and abetted the Mattel Servicios' employees' breaches of fiduciary duty, is necessarily based upon the disclosure of Mattel's confidential information. 4AAC ¶ 169 ("Machado breached his fiduciary duty  by  misappropriating Mattel trade secret and proprietary information."). The fiduciary duty counter-claims are accordingly superseded.
Moreover, none of the agreements signed by Machado, Vargas, and Trueba imposed fiduciary obligations. An employer's
Summary judgment must be entered against Mattel on Mattel's counter-claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty:
Mattel's counter-claim for breach of fiduciary duty against Bryant is necessarily based upon the same nucleus of conduct as its trade secret misappropriation counter-claim, since any fiduciary obligation assumed by Bryant was limited to the non-disclosure of Mattel's trade secret information. Mattel's counter-claim for aiding and abetting Bryant's breach of fiduciary duty against MGAE and Larian is likewise based upon the same nucleus of conduct that forms the basis for Mattel's counter-claim for trade secret misappropriation.
Mattel's counter-claim for breach of fiduciary duty against Machado fails because Mexico doesn't recognize a common law claim for breach of fiduciary duty. It also fails because Machado owed fiduciary
Mattel's counter-claim for aiding and abetting Castilla, Contreras, Cooney, Vargas, and Trueba's breaches of fiduciary duty is necessarily based upon the same nucleus of facts as its trade secret misappropriation counter-claim, because any fiduciary obligation accepted by these employees was limited to the non-disclosure of secrets. Its counter-claim for aiding abetting all non-Bryant employees breaches of fiduciary duty is also expressly based upon nothing more than the misappropriation of information. Moreover, Mattel's counter-claim for aiding and abetting Vargas and Trueba's breaches of fiduciary duty fails because the two Mattel Servicios employees owed no fiduciary duty to either Mattel or Mattel Mexico.
D. Breach of Contract and Intentional Interference with Contractual Relations
Mattel claims that Machado and Bryant breached their employment agreements. Mattel also claims that MGAE and Larian "induced [Mattel employees] to steal ... Mattel trade secrets and other proprietary and confidential information and ... bribed or induced [Mattel employees] to work or assist MGA" while those individuals were still employed by Mattel. Mattel claims that MGAE and Larian interfered with Mattel's contractual relations with the following employees: "Bryant, Brawer, Machado, Trueba, Vargas, Castilla, Contreras, Cooney, Cabrera, Morales, Salazar, and other former Mattel employees," who are not named in the 4AAC.
1. Breach of Contract
It is undisputed that UTSA does not supersede Mattel's counter-claim for breach of contract against Bryant and Machado. UTSA "does not affect  contractual remedies, whether or not based upon misappropriation of a trade secret." Cal. Civ.Code § 3426.7(b).
However, Machado breached no contractual obligations to either Mattel or Mattel Mexico because he did not enter into a valid contract with either entity. To prevail on its counter-claim for breach of contract, Mattel must establish (1) the existence of a valid contract; (2) Mattel's performance or excuse for non-performance; (3) Machado's breach; and (4) resulting damage to Mattel. Acoustics, Inc. v. Trepte Constr. Co., 14 Cal.App.3d 887, 913, 92 Cal.Rptr. 723 (1971). Mattel claims that Machado breached three contracts: (1) a Mattel Conflict Questionnaire; (2) a Mattel Servicios Conflict of Interest Manual; and (3) a Mattel Code of Conduct.
The Conflict Questionnaire and Code of Conduct weren't supported by adequate consideration. "A promise is not enforceable unless consideration was given in exchange for the promise." US Ecology, Inc. v. State of California, 92 Cal.App.4th 113, 128-29, 111 Cal.Rptr.2d 689 (2001). In its Conflict Questionnaire and Code of Conduct, Mattel purported to impose dozens of obligations upon Machado without providing him consideration in exchange for his promise of performance. Mattel responds that Machado was employed by Mattel and Mattel Mexico, and that such employment served as the ongoing consideration for Machado's promised performance under the Conflict Questionnaire
There is also no evidence that Machado accepted the obligations imposed by the Code of Conduct, which was a handbook distributed to the employees of Mattel and its subsidiaries, with no place for the employee's signature. 4AAC, Ex. E. Mattel responds that Machado accepted the terms of the Code of Conduct by his "perform[ance] [of] services that benefitted Mattel." A contract may be accepted by "performance of the conditions of a proposal, or the acceptance of the consideration offered with a proposal." Cal. Civ. Code § 1584. But Mattel in fact contests that Machado performed the obligations imposed by the Code of Conduct. Moreover, Mattel's argument that Machado accepted any consideration promised in exchange for his compliance with the Code of Conduct (continued employment) is, for the reasons discussed above, disproven by the undisputed evidence that his employment relationship was limited to Mattel Servicios. Webster Dec., Ex. 99.
Machado does not challenge that he accepted the obligations imposed by the Conflict of Interest Manual, which he also concedes was supported by adequate consideration. Machado instead argues that Mattel and Mattel Mexico lack standing to enforce the Conflict of Interest Manual, which was an agreement between Mattel Servicios and Machado. Mattel responds that both Mattel and Mattel Mexico were third party beneficiaries to the agreement. "The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract." Johnson v. Holmes Tuttle Lincoln-Merc., 160 Cal.App.2d 290, 297, 325 P.2d 193 (1958); see also Cal. Civ.Code § 1559 ("A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it."). The Manual can be read to discuss an obligation to not disclose "Mattel" confidential information. But there is no definition of the term "Mattel." To the contrary, the agreement begins with a reference to "[t]he employees of Mattel Servicios, S.A. de C.V.," and then uses the shorthand "Mattel" throughout the remainder of the agreement. 4AAC, Ex. D. The language used in the Manual's other clauses actually establishes that the term "Mattel" refers to "Mattel Servicios." The Manual repeatedly describes obligations owed by "employees"—for example, an obligation to "not to conduct business, within a period of six months after termination" with Mattel. Id. at 136; see also id. at 140 ("Mattel provides various Technological Resources to its employees"). As discussed above, and as recognized by the Manual itself, the "employees" upon whom the obligations were imposed were employees of Mattel Servicios and not Mattel or Mattel Mexico. The Manual's ambiguous use of the term "Mattel" cannot be construed to encompass Mattel, Inc. or Mattel Mexico pursuant to the well-established rule of construction that "[t]he language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." Cal. Civ.Code § 1654.
Machado's motion for summary judgment on Mattel's counter-claim for breach of contract is therefore granted.
2. Intentional Interference with Contractual Relations
Intentional interference with contractual relations is a tort. See 5 Witkin,
There is also evidence that MGA involved Bryant in the Bratz doll design project between September 1, 2000 and October 4, 2000, on which date Bryant signed his employment contract with MGA. Bryant's non-disclosure of his inventions to Mattel may have violated the section of his Inventions Agreement requiring him to "communicate to the Company as promptly and fully as practicable all inventions." TX 25. Bryant's work on behalf of MGA may have violated paragraph 3 of the Inventions Agreement that states
Mattel moves for summary judgment on some elements of the intentional interference with contractual relations counter-claim, which requires: "(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Quelimane Co., Inc. v. Stewart Title Guaranty Co., 19 Cal.4th 26, 55, 77 Cal.Rptr.2d 709, 960 P.2d 513 (1998) (quoting Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126, 270 Cal.Rptr. 1, 791 P.2d 587 (1990)).
Mattel argues that the undisputed facts establish that it had valid and enforceable contracts with Castilla, Cooney, Brawer, Cabrera, Morales, Salazar, Tumaliuan, and Bryant. MGA does not oppose Mattel's argument that it had valid and enforceable contracts with Cooney, Castilla, Cabrera, Morales, Salazar, and Tumaliuan. There are genuine issues of material fact as to whether Brawer was bound by Mattel's Code of Conduct, a document that does not contain his signature of other identifying information, and as to which he professed no knowledge during his deposition. See Proctor Dec., Ex. 358; Brawer Depo., Vol. I, at 91-95.
Mattel also argues that the undisputed evidence establishes that its former employees breached their contracts. However, there is a genuine issue of material fact on this issue.
First, Mattel argues that Cooney and Castilla failed to comply with a common provision in their Inventions Agreements requiring them to "deliver to the Company all tangible, written, graphical, machine readable, and other materials (including all copies) in my possession or under my control containing or disclosing Proprietary Information." The term "Proprietary Information" tracked UTSA's definition of a trade secret. In light of the genuine issues of material fact as to whether any of the materials taken by Castilla and Cooney constituted trade secrets, Mattel's motion is denied as to this issue.
Second, Mattel argues that Cabrera, Morales, and Salazar worked for MGA's benefit while at Mattel. These employees, according to Mattel, breached their contractual duty to not "without the Company's express written consent, engage in any employment or business other than for the Company, or invest in or assist (in any manner) any business competitive with the business or the future business of the Company." Cabrera, Morales, and Salazar were not employed by anybody other than Mattel; they received payments from an independent contractor named Veronica Marlow. Mattel may argue that these individuals engaged in "business" competitive with Mattel, but the term "business" is ambiguous. It could refer to any activity that generates revenue for the individual, but it could also be read more restrictively to refer to a competitive enterprise, in which Cabrera, Morales, and Salazar were certainly not engaged. Neither party has presented extrinsic evidence capable of resolving
Third, Mattel argues that its former intern, Tumaliuan, breached his contract with Mattel by working for MGA. Tumaliuan's internship at Mattel commenced on May 19, 2003. However, Tumaliuan did not disclose to Mattel the fact that he had signed an employment agreement with MGA eleven months earlier, on June 10, 2002, and that his term of employment at MGA was ongoing; there had been no termination. Mattel argues that Tumaliuan's conduct violated the Inventions Agreement's requirement that he not "engage in any employment or business other than for the Company, or invest in or assist (in any manner) any business competitive with the business" of Mattel, without first obtaining Mattel's written consent. The term "engage" is ambiguous. It could refer to the mere fact of an ongoing employment relationship, actively working for another company, or commencing a new employment relationship. Tumaliuan did not initiate a new employment relationship with MGA after he started his internship with Mattel, and there is a genuine issue of material fact as to whether he actually worked for MGA while interning at Mattel. The parties have provided the Court with no extrinsic evidence to resolve the ambiguity, leaving this issue for the fact-finder to resolve.
There is a genuine issue of material fact as to whether MGA intentionally interfered with the Mattel employees' contracts. As discussed earlier, the evidence is ambiguous as to the alleged misappropriation of Mattel confidential information and MGA's role in such conduct. Moreover, MGA argues that it lacked knowledge about the contracts that bound Mattel employees, including Bryant, but the fact that MGA used contracts that contained similar forced disclosure, non-disclosure, and loyalty clauses may suggest MGA's recognition that the employees' alleged conduct was wrongful.
Mattel's counter-claim for conversion alleges that MGA and Machado "wrongfully converted Mattel property and resources by appropriating and using them for their own benefit and gain and for the benefit and gain of others, without the permission of Mattel." 4AAC ¶ 193. The "property" allegedly converted included "such proper [sic] and materials that were created by Bryant while he was a Mattel product designer," other tangible "Bratz inventory," and finally "the [trade secret] documents, materials, designs, names, and other information" allegedly misappropriated by the departing Mattel employees. Id. ¶¶ 194-96.
UTSA supersedes this counter-claim to the extent it is based upon the misappropriation of Mattel's confidential information, whether or not that information rises to the level of a trade secret. First, as discussed above, allowing Mattel to claim that MGA and Machado converted non-trade secret confidential information undermines the California Court of Appeals' interest in redeeming UTSA's purpose of "provid[ing] `unitary definitions of trade secret and trade secret misappropriation.'" K.C. Multimedia, 171 Cal. App.4th at 957, 90 Cal.Rptr.3d 247; see also Silvaco, 184 Cal.App.4th at 239 n. 22, 109 Cal.Rptr.3d 27 ("We emphatically reject the  suggestion that the uniform act was not intended to preempt `common law conversion claims based on the taking of information that, though not a trade secret, was nonetheless of value to the claimant.'") (quoting Cenveo v. Slater, 2007 WL 527720, at *4 (E.D.Pa.2007)). Second, a claim for conversion requires the existence of a property right, and "information is not property unless some law makes it so." Silvaco, 184 Cal.App.4th at 239, 109 Cal.Rptr.3d 27.
MGA concedes that the counter-claim is not superseded to the extent it is based on the misappropriation of "tangible documents and things." MGA MSJ at 31:2-3. As previously recognized, the Bratz sketches and sculpts had some value apart from the information they embodied and Mattel seeks the return of those items in this litigation. Thus, the conversion counter-claim survives to the extent predicated upon MGA's exercise of dominion over the physical Bratz-related works. See Chicago Show Printing Co. v. Sherwood, No. 92 C 309, 1992 WL 175577, at *3 (N.D.Ill. July 14, 1992).
The counter-claim does not, however, survive to the extent predicated upon the physical documents allegedly misappropriated by Mattel's former employees because Mattel cannot show that the documents had any value "apart from the information contained therein." See Thomas & Betts Corp. v. Panduit Corp., 108 F.Supp.2d 968, 973 (N.D.Ill.2000). The Court can ensure the return of such physical materials upon a finding of trade secret misappropriation by the fact-finder. See Hauck Mfg. Co. v. Astec Indus., Inc., 375 F.Supp.2d 649, 661 (E.D.Tenn.2004).
For the foregoing reasons, Machado's motion is granted as to Mattel's counter-claim for conversion and MGA's motion is granted in part and denied in part as to Mattel's counter-claim for conversion.
F. Breach of Duty of Loyalty and Aiding and Abetting Breach of Duty of Loyalty
Mattel alleges that Bryant and Machado breached their duties of loyalty to Mattel by "entering into agreements with a Mattel competitor [and] using Mattel property and resources for the benefit of, and to aid and assist, themselves personally and the competitor of Mattel" while still employed by Mattel. 4AAC ¶ 181. Mattel also alleges that MGAE and Larian aided and abetted Bryant's breach of his duty of loyalty by enabling Bryant to breach his "obligation ... not to compete with Mattel or assist a competitor of Mattel during the term of his employment [and] give preference to Mattel's business over his own, similar interests or those of Mattel's competitors during the course of his employment with Mattel." Id. ¶ 187. Mattel alleges that MGAE and Larian enabled Mattel employees, including Brawer, Machado, Trueba, Vargas, Castilla, Contreras, Cooney, Cabrera, Morales, and Salazar, to breach their duties of loyalty, which required that they "not  compete with Mattel or assist a competitor of Mattel during their Mattel employment." Id. ¶ 188. The counter-claims for breach of duty of loyalty against Bryant and Machado, and aiding and abetting breach of duty of loyalty against MGAE and Larian, are based upon these allegations of misconduct.
1. Machado, Vargas, and Trueba
For reasons discussed above, UTSA supersedes these counter-claims to the extent they are based upon Machado, Vargas, and Trueba's misappropriation of Mattel's information, whether or not that information qualifies as a trade secret. Mattel alleges the factual predicate for its counter-claim against Machado with generality, stating that he "aided, assisted and worked for a competitor of Mattel" while still employed by Mattel. 4AAC ¶ 181. Mattel elsewhere argues that Machado committed the following acts of wrongdoing:
Mattel Opp'n to Machado MSJ at 31:14:20.
Machado's alleged inducement of Vargas to assist in preparing a presentation, as well as his alleged inducement of Vargas and Trueba to misappropriate Mattel's information, forms the basis for Mattel's counter-claim for trade secret misappropriation against Machado. See K.C. Multimedia, 171 Cal.App.4th at 961, 90 Cal.Rptr.3d 247 (trade secret misappropriation includes "breach or inducement of a breach of a duty to maintain secrecy"). MGAE and Larian's acts of aiding and abetting the misappropriation of Machado, as well as Vargas and Trueba whether independently or indirectly through Machado, forms the basis of Mattel's trade secret misappropriation counter-claim against MGA. Id. The vast majority of both counter-claims are therefore superseded by UTSA to the extent that they concern the Mattel Servicios employees.
Mattel's duty of loyalty counter-claims also fail to the extent predicated upon the conduct of the Mattel Servicios employees because none of the employees owed duties of loyalty to Mattel or Mattel Mexico. A duty of loyalty, if any, is imposed by California Labor Code Section 2863, which provides that any employee "who has business to transact on his own account, similar to that intrusted to him... shall always give the preference to the business of the employer." Cal. Labor Code § 2863. Machado, Vargas, and Trueba were not employees of Mattel and Mattel Mexico and owed no section 2863 duties to either Mattel or Mattel Mexico.
Machado's motion is granted as to Mattel's counter-claim for breach of duty of loyalty because (1) the counter-claim is in large part superseded by UTSA; and (2) Machado owed no duty of loyalty to either Mattel or Mattel Mexico. MGA's motion is granted as to Mattel's counter-claim for aiding and abetting breach of duty of loyalty to the extent the claim is predicated upon the conduct of the Mattel Servicios employees because (1) UTSA supersedes the vast majority of the counter-claim; and (2) the Mattel Servicios employees owed no duties of loyalty to Mattel or Mattel Mexico.
2. Brawer, Castilla, Contreras, and Cooney
The counter-claim for aiding and abetting breach of duty of loyalty is also superseded to the extent based upon the conduct of Brawer, Castilla, Contreras, and Cooney. There is no allegation, nor any evidence in the record, that these employees engaged in wrongdoing unrelated to the misappropriation of Mattel's information. See 4AAC ¶¶ 64-85. MGAE and Larian's inducement of the employees' disloyalty thus forms the basis for Mattel's trade secret misappropriation counter-claim. See K.C. Multimedia, 171 Cal. App.4th at 961, 90 Cal.Rptr.3d 247.
3. Tumaliuan, Bryant, Cabrera, Salazar, and Morales
UTSA's supersessive effect on both counter-claims is minimal to the extent that the counter-claims concern the conduct of Bryant, Tumaliuan, Cabrera, Salazar and Morales. Although Bryant's disclosure of the Bratz fashion doll concept to MGA forms the basis of Mattel's counter-claim for trade secret misappropriation, Mattel alleges that Bryant engaged in other misconduct, including, for example, directing the production of the first generation Bratz dolls while still employed by
Machado's motion is granted as to Mattel's counter-claim for breach of duty of loyalty because UTSA supersedes the vast majority of the counter-claim and Machado owed no duty of loyalty to Mattel or Mattel Mexico. MGA's motion is granted as to Mattel's counter-claim for aiding and abetting breach of duty of loyalty to the extent that the counter-claim concerns the conduct of Machado, Vargas, Trueba, Brawer, Castilla, Contreras and Cooney, as well as Bryant's alleged misappropriation of Mattel's information. MGA's motion is denied as to Mattel's counter-claim for aiding and abetting breach of duty of loyalty to the extent that the counter-claim concerns the conduct of Tumliuan, Cabrera, Morales, Salazar, and the conduct by Bryant that does not form the basis of Mattel's trade secret misappropriation counter-claim.
G. Unfair Competition
Mattel alleges MGA and Bryant engaged in unfair competition in violation of Cal. Bus. & Prof.Code § 17200, et seq., by committing "commercial bribery of Bryant ... and misappropriation of trade secrets," though the counter-claim incorporates by reference all earlier allegations. 4AAC ¶¶ 201-204. The counter-claim is superseded to the extent it is based upon the misappropriation of Mattel's information. See K.C. Multimedia, 171 Cal.App.4th at 961, 90 Cal.Rptr.3d 247. The Copyright Act preempts this counter-claim to the extent predicated upon the infringement of Bryant's works. See Fisher v. Dees, 794 F.2d 432 (9th Cir.1986). The counter-claim is not otherwise preempted by the Copyright Act or superseded by the UTSA. For example, this counter-claim encompasses MGA's inducement of Mattel employees to work against Mattel's interests and for MGA's benefit, while still employed by Mattel. MGA has not challenged this basis for the counter-claim.
V. Statutes of Limitations
Both parties move for summary judgment on the timeliness of Mattel's counter-claims. For the purposes of measuring the statute of limitations, two dates are important: (1) the date on which the statute
A. Relation Back and Date of Filing
Mattel filed its original pleading against Bryant on April 27, 2004, and moved for leave to file an amended pleading substituting MGAE, Larian, and MGA HK for the Doe defendants on November 20, 2006. The district court denied Mattel's request, but directed Mattel to file its claims as counter-claims to MGA's complaint, holding that Mattel's counter-claims against MGAE, Larian, and MGA HK related back to the date of its complaint against Bryant. Though this ruling was erroneous, it caused no prejudice to MGA, since it is clear that Mattel's request for leave to amend its complaint against Bryant would have been granted if the district court had been aware of the general rule that Rule 15(c) "by its terms, only applies to the amended pleadings in the same action as the original, timely, pleading." Bailey v. Northern Ind. Pub. Serv. Co., 910 F.2d 406, 413 (7th Cir.1990); cf. Marcoux v. Shell Oil Prods. Co. LLC, 524 F.3d 33, 38 (1st Cir.2008) (holding that district court did not commit prejudicial error by allowing relation back to pleading in separate action), aff'd in part and rev'd in part on other grounds, Mac's Shell Service, Inc. v. Shell Oil Prods. Co. LLC, ___ U.S. ___, 130 S.Ct. 1251, 176 L.Ed.2d 36 (2010). The law of the case doctrine demands that the district court's decision be left undisturbed. Moore v. James H. Matthews & Co., 682 F.2d 830, 833-34 (9th Cir.1982). Mattel's identification of the Bratz concept as a trade secret must as a matter of basic equity relate back to the original complaint against Bryant as well, since it "arose out of the conduct, transaction, or occurrence,"—i.e., Bryant's disclosure of the Bratz concept to MGA—"set out  in the original pleading." Fed. R.Civ.P. 15(c). To the extent Mattel's surviving counter-claims for copyright infringement, breach of contract, intentional interference with contractual relations, misappropriation of trade secrets, breach of duty of loyalty, and aiding and abetting breach of duty of loyalty, concern the Bratz works and Bryant's work for MGA, those counter-claims are deemed to have been filed on April 27, 2004 pursuant to the law of the case doctrine.
Neither MGA nor Mattel make any arguments about the filing date of Mattel's allegations concerning the conduct of other employees like Brawer, Cooney, Contreras, Castilla, Machado, Vargas, Trueba, Cabrera, Morales, and Salazar.
B. Applicable Statutes of Limitations
Mattel's counter-claim for trade secret misappropriation must have been brought "within three years after the misappropriation is discovered or by exercise of reasonable diligence should have been discovered." Cal. Civ.Code § 3426.6. "[A] continuing misappropriation constitutes a single claim." Id. However, contrary to MGA's argument, subsequent acts of trade secret misappropriation by other Mattel employees aren't the type of "continuing misappropriation" contemplated by the statute:
Intermedics, Inc. v. Ventritex, Inc., 822 F.Supp. 634, 653-54 (N.D.Cal.1993).
"A plaintiff is under a duty to reasonably investigate, and a suspicion of wrongdoing, coupled with a knowledge of
Mattel's counter-claim for copyright infringement must have been brought "within three years after the claim accrued." 17 U.S.C. § 507. A claim for copyright infringement accrues "when one has knowledge of a violation or is chargeable with such knowledge." Roley v. New World Pictures, Ltd., 19 F.3d 479, 481 (9th Cir.1994).
Mattel's counter-claim for conversion must have been brought within three years of the theft, though the statute of limitations period is tolled "`only for that period during which the claim is undiscovered by plaintiff or until such time as plaintiff, by the exercise of reasonable diligence, should have discovered it.'" Jolly v. Eli Lilly & Co., 44 Cal.3d 1103, 1111, 245 Cal.Rptr. 658, 751 P.2d 923 (1988). "So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her." Id.
Mattel's counter-claim for a violations of Cal. Bus. & Prof.Code § 17200 must have been brought "within four years after the cause of action accrued." Cal. Bus. & Prof.Code § 17208.
Mattel's state law counter-claims grounded in tort, including its counter-claims for breach of duty of loyalty, aiding and abetting breach of duty of loyalty, and intentional interference with contractual relations must have been brought within two years of the alleged wrongdoing. Cal. Code Civ. Proc. § 339(1). Mattel's counter-claim for breach of contract must have been brought within four years of the alleged breach. Cal.Code Civ. Proc. § 337.
Mattel's counter-claims alleging violations of the Racketeer Influenced and Corrupt Organizations Act must have been brought within four years. Pincay v. Andrews, 238 F.3d 1106, 1108 (9th Cir.2001). This limitations period restarts with the commission of " a new and independent act that is not merely a reaffirmation of a previous act" that  inflicts "new and accumulating injury on the plaintiff." Grimmett v. Brown, 75 F.3d 506, 513 (9th Cir.1996) (emphasis removed).
C. Date of Accrual
1. Background Facts
Before there was Bratz, there was Diva Starz, a line of big-headed dolls released by Mattel in early 2000, nearly nine months before Bryant left Mattel for MGA. Mattel considered, but ultimately decided against, the name "Brats" for a miniature version of the Diva Starz doll line, though there is a genuine issue of material fact as to whether Bryant was exposed to the word "Brats." See Deposition of Kislap Ongchanco, dated April 24, 2007, at 232.
Before he discussed Bratz with MGA on September 1, 2000, Bryant solicited other Mattel employees to help create the concept Bratz sketches and sculpts. Bryant continued to use other Mattel employees' resources between the September meeting and his October 19, 2000 resignation. On the date he resigned, Bryant declined to identify his next destination and his exit interview form cryptically stated that an "opportunity arose [and he] had to take it." MGA UF 811. Mattel's former Marketing Director, with whom Bryant worked, recalls that she didn't believe that Bryant was telling her the full story about the reasons for his resignation from Mattel. Deposition of Mattel 30(b)(6) Jill Nordquist, dated July 31, 2007, at 133. She also recalled that "[a]round the time that Bratz launched in [ ] the summer of 2001" some Mattel employees who worked in the
Mattel was initially concerned that MGA's Bratz dolls infringed its line of Diva Starz dolls or another unreleased product line named Toon Teens. Declaration of Warrington Parker, Ex. 47 (Mattel internal report stating that Bratz "bear[ ] significant resemblance to Diva Starz in both appearance and attitude"). Mattel never attempted to litigate these claims, though in early 2002, the company's legal department opened an official investigation file on the basis of "[i]nformation received from Design Center staff, Evelyn Viohl and Ivy Ross that MGA Entertainment, headed by a person known as Isaac Larian has recently hired a number of former Matel [sic] employees and is manufacturing products that appear to be Mattel designs." TX 1195RS-002. The opening of the investigation file followed a telephone conference call between the head of Mattel's security department and two Mattel employees, in which he essentially learned that "Bryant while at MGA created Bratz and in doing so infringed on the copyright of . . . Tune [sic] Teens to create Bratz." Deposition of Richard DeAnda, dated December 19, 2007, at 173. Mattel looked into the extent of Bryant's exposure to the Toon Teens line during his time as a Mattel employee.
On August 5, 2002, Mattel's Chief Executive Officer Robert Eckert received an anonymous letter that stated: "In 2000 a Mattel employee by the name of Carter Bryant was working with Mattel to design dolls. One of the dolls that he was working on creating was the Bratz dolls. MGA Entertainment found out about his creation and approached him . . ." Ex. 6302 to MGA MSJ. The letter found its way to the head of Mattel's security department, who discussed its contents in a subsequent communication to Mattel's Vice President of Human Resources: "I'm aware of this situation and have been working on it for several months. My frustration in this matter was the genesis of [REDACTED] that is now in the hands of Robert Normile. The truth of the matter is that Carter Bryant did work for Mattel . . ." Ex. 6302 to MGA MSJ. Nearly seven months later, on July 18, 2003, Eckert read a Wall Street Journal article that identified Bryant as the creator of the Bratz line of dolls. At least once prior to that date, Larian had publicly identified himself, and not Bryant, as "the inspiration behind the Bratz dolls." Proctor Dec., Ex. 127.
2. Prior Rulings
Before the phase 1 trial, the district court issued several rulings concerning the timeliness of Mattel's claims and counter-claims. Following a consideration of some, though not all, of the evidence discussed above, the district court ruled that (1) Mattel's claims against MGA related to Bryant and the theft of the Bratz dolls accrued on July 18, 2003, the date on which the Wall Street Journal article identifying Bryant as the creator of Bratz was published; and (2) Mattel's copyright infringement claim did not accrue prior to November 20, 2003, on which date "Mattel [first] receive[d] copies of the Bratz drawings." Dkts. 3826 & 3902.
Though MGA raises specific challenges to the timeliness of Mattel's counter-claims to the extent that those counter-claims relate to Bryant's conduct and the disclosure of the Bratz concept to MGA, it makes no specific argument arguments about the timeliness of Mattel's allegations about its other former employees.
The law of the case doctrine ordinarily requires adherence to the district court's earlier rulings about the timeliness of Mattel's Bratz-related counter-claims. However, there is no reason why a fact-finder should not be able to evaluate whether new evidence produced after the phase 1 proceedings points to a contrary conclusion. See Minidoka Irrigation Dist. v. Dep't of Interior of U.S., 406 F.3d 567, 573 (9th Cir.2005) (recognizing exception to law of the case doctrine where "substantially different evidence was adduced at a subsequent trial"). For example, since the phase 1 proceedings, Mattel has produced a redacted version of an outside consultant's report that may suggest Mattel's suspicions about the timing of Bryant's creation of the Bratz sketches and sculpt. Mattel's selective redaction gives greater context to DeAnda's communication with Kaye, to which the prior district court granted minimal weight. Moreover, Mattel has left for phase 2 its counter-claim for trade secret misappropriation based on the alleged misappropriation of the Bratz concept. There is no reason that the prior district court's rulings should bind the fact-finder in this case from evaluating the timeliness of an allegation, especially when the timeliness of that allegation was not before the prior district court.
VI. Trade Dress Infringement and Trade Dress Dilution
MGA claims that Mattel's sale of three doll products in a type of trapezoidal packaging already used by MGA, as well as Mattel's sale of the Wee 3 Friends doll in a heart shaped packaging used by MGA's 4-Ever Best Friends doll, constituted trade dress infringement in violation of 15 U.S.C. § 1125(a); and trade dress dilution in violation of 15 U.S.C. § 1125(c) and Cal. Bus. & Prof.Code § 14330. MGA is the owner of registered trademarks in (1) a transparent trapezoidal box; and (2) "a three-dimensional configuration of an isosceles trapezoid cardboard box with the top and bottom being parallel to each other and the non-parallel sides being of equal length." Exs. 10 & 11 to MGA's Request for Judicial Notice. MGA withstood the USPTO's initial rejection of its trademark applications by arguing that (1) the trade dress was non-functional because it used more surface area; and (2) the trade dress was non-distinctive as it was "a unique innovation in the toy industry in general and the fashion doll category in particular" at the time of its introduction. Id. Since the evidence contradicts MGA's statements to the USPTO, MGA's registrations are not entitled to the Court's deference. Wells Fargo & Co. v. Stagecoach Properties, Inc., 685 F.2d 302, 306 (9th Cir.1982).
A. Trade Dress Infringement
To prevail on its claim for trade dress infringement MGA must show that "(1) the trade dress is inherently distinctive or has acquired distinctiveness
MGA's asserted trade dress is not inherently distinctive and has not acquired distinctiveness through secondary meaning. "If a mark is inherently distinctive it need not be shown to also have a secondary meaning." Int'l Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 824 (9th Cir.1993). The predominant test for inherent distinctiveness asks whether "(1) the design or shape is a common, basic shape or design; (2) it was unique or unusual in a particular field; and (3) it was a mere refinement of a commonly-adopted and well-known form of ornamentation for a particular class of goods which consumers view as mere ornamentation." 1 McCarthy on Trademarks and Unfair Competition § 8:13 (4th ed. 2010) (citing Seabrook Foods, Inc. v. Bar-Well Foods, Ltd., 568 F.2d 1342 (C.C.P.A.1977)). In other words, if "the trade dress is of such an unusual design that a buyer will immediately rely on it to differentiate the source of the product," then it is inherently distinctive. Id. "[A] product's trademark or trade dress acquires a secondary meaning when the purchasing public associates the mark or dress with a single producer rather than with the product itself." Int'l Jensen, Inc., 4 F.3d at 823. Unlike inherent distinctiveness, "secondary meaning is a learned association" between the producer and the packaging, or "an `acquired distinctiveness.'" Id. (quoting Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 769, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992)). "While evidence of a manufacturer's sales, advertising and promotional activities may be relevant in determining secondary meaning, the true test of secondary meaning is the effectiveness of this effort to create it." Id.
(a) Trapezoidal Packaging
It cannot be disputed that toys, and even dolls, have been sold in trapezoids for decades. See, e.g., Ideal Toy Corp. v. Kenner Prods. Div. of General Mills Fun Group, Inc., 443 F.Supp. 291, 297 (S.D.N.Y.1977) (analyzing "action figures. . . sold in virtually identical . . . trapezoidal box contain[ing] an arch-like opening through which the full figure may be viewed"). A trapezoid is the sort of intuitive, "ordinary geometric shape" that courts generally "regard[ ] as non-distinctive and protectable only upon proof of secondary meaning." Wiley v. Am. Greetings Corp., 762 F.2d 139, 142 (1st Cir. 1985). MGA quotes an internal Mattel document that lauds the "unique" and "innovative" "pyramid shape packaging" in which the Bratz dolls are sold, but conveniently omits the rest of the quoted section of the document, which makes clear that the words "unique" and "innovative" do not refer to the "pyramid" shape, but to other aspects of the packaging; specifically: " consistent line look with illustrations  embellish collector packaging with soft goods [and 3] color focus: raspberry and dark blue." Ex. 1812A to MGA MSJ. MGA does not limit its asserted trade dress to a trapezoidal package with any of the features listed in Mattel's document, or even to a specific color. Trapezoidal packaging standing alone is not an unusual design and is not inherently distinctive.
Nor has the trapezoidal packaging used to house MGA's Bratz dolls acquired distinctiveness through secondary meaning. Other than its trademark registrations, which were obtained after it made the representation to the USPTO that trapezoidal packaging was unique in the fashion doll segment of the toy industry, as well as
(b) 4-Ever Best Friends
MGA's 4-Ever Best Friends packaging, which consists of a window through which multiple dolls can be viewed, the brand name displayed halfway down the middle of the packaging, and a decorative handle, is not inherently distinctive either. The heart is a "common, basic shape, similar to a geometrical design." Wiley v. Am. Greetings Corp., 762 F.2d 139, 142 (1st Cir.1985) (quotation marks and citation omitted). The product's use of a handle is unremarkable as well as obviously functional (for reasons discussed below). MGA responds that its trade dress includes a product name composed of a numeral and the word "friends," citing to a Mattel report that characterized MGA's packaging as a "unique structure that accentuates the two dolls and unique positioning." TX 15737-001. It's difficult to know of which elements, or combination of elements, of MGA's trade dress this statement refers, and its relevance to the present inquiry is therefore highly limited. Moreover, as explained below, the document's reference to the functionality of the packaging evidences the infirmity of MGA's trade dress claim.
Nor did MGA's 4-Ever Best Friends packaging acquire distinctiveness through secondary meaning, because it hadn't even been released to market at the time Mattel allegedly began planning the Wee 3 Friends line of dolls. MGA notes that its advertising of 4-Ever Best Friends started in early to mid 2004, when the product was marketed as a direct alternative to Mattel's line of Barbie dolls. Ex. 11244 to MGA MSJ. There is no evidence that MGA was able to build an association in the minds of consumers between any of the elements of its asserted trade dress— heart shaped packaging, a handle, the use of a number and the word "friends," and "themed accessories and mix-and-match
"A trademark or trade dress is functional if it is essential to the product's use or purpose or if it affects the cost or quality of the article." Int'l Jensen, Inc., 4 F.3d at 823. There is a two step test for functionality. The court must first determine whether the alleged trade dress is "essential to the use or purpose of the article [or] affects [its] cost or quality." Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., 457 F.3d 1062, 1072 (9th Cir.2006) (quoting TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32-33, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001)). The court must alternatively inquire into the "aesthetic functionality" of the alleged trade dress: "whether protection of the feature as a trademark would impose a significant non-reputation-related competitive disadvantage." Id.
(a) Trapezoidal Packaging
MGA adopted its trapezoidal packaging for an expressly functional purpose. MGA's 30(b)(6) designee explained that:
Deposition of MGA Entertainment, Inc. (Samir Khare) at 500-503.
Larian also admitted that MGA chose its trapezoidal packaging because it, inter alia, "had light to show the product, which was inside, which we thought was beautiful, the fashions, the hair, et cetera." Deposition of Isaac Larian, dated April 12, 2010, Vol. VIII, at 2216-2219. MGA now attempts to disavow its corporate designee and Chief Executive Officer's testimony with self-serving declarations about instances in which the trapezoidal packaging may "typically" fail to achieve its intended purpose of maximizing light flow to the product contained within the package. See Declaration of Paula Garcia in Support of MGA's Opp'n to Mattel MSJ ¶ 11. Even though the illuminating benefits of a trapezoidal package may not be realized when, for example, the package is located between two shelves, that doesn't reduce the potential functional value of the package. Au-Tomotive, 457 F.3d at 1072 (holding that key question in functionality analysis is whether asserted trade dress "add[s] to the quality of the products"). The package's sloped sides allow light to flow outwards
MGA points to certain disadvantages of trapezoidal packaging, including the fact that it requires "more surface area than a rectangular package," and "creates a larger footprint on store shelves," resting both illogical arguments on its employee's declaration. No reasonable fact-finder could conclude that MGA would have needed to use less packaging material if it sold its products in rectangular boxes: the trapezoidal boxes used by MGA were filled to capacity in order to fit the product and its accessories into the same package. See Pembleton Dec., Ex. A. More importantly, a product feature need not have a "superior utilitarian advantage" in order to be functional. Disc Golf Ass'n, Inc. v. Champion Discs, Inc., 158 F.3d 1002, 1007 (9th Cir.1998). Toy manufacturers may ultimately conclude that the illuminating functions of the trapezoidal package are outweighed by the disadvantages cited by MGA, but the trade dress still has functional qualities.
Trapezoidal packaging is also aesthetically functional. As the Ninth Circuit has acknowledged, "a box shape or certain uses of color" constitutes a "true aesthetically functional feature." Au-Tomotive, 457 F.3d at 1072. MGA argues that Mattel has cited to no evidence that consumers are attracted to the trapezoidal packages that house the Bratz dolls, but it is MGA's burden to prove the non-functionality of its asserted trade dress. See Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1530 (9th Cir.1993).
(b) 4-Ever Best Friends
The 4-Ever Best Friends packaging was functional because it allowed consumers to see multiple dolls through the same viewing window. One of MGA's designers admitted that the 4-Ever Best Friends packaging was tailored to improve "storage and portability," which she characterized as the packaging's "dual function. . . it would act as a way to hold your dolls so that you could carry it with you if you went to your friend's house." Garcia Depo. at 1522. MGA's witness further testified that the packaging accomplished these functional goals through a front panel that could be lowered to "expose the dolls. And when done, you would pull the front panel back up to close it." Id. at 1523.
MGA's packaging was also aesthetically functional. Heart shape was identified as a prototypical example of aesthetically functional packaging by the 1938 Restatement of Torts, to which the doctrine can be traced. See Au-Tomotive Gold, Inc., 457 F.3d at 1068 ("Two examples of products with aesthetic functional features were offered with very little comment—a heart-shaped candy box and a distinctive printing typeface."). The fact that the design attracted so much attention even before the product was released to market only evidences its aesthetic functionality. See Wiley v. American Greetings Corp., 762 F.2d 139 (1st Cir. 1985) (heart shape of packaging enhanced value of product independent of its source-identifying function because it was aesthetically pleasing to children).
3. Likelihood of Consumer Confusion
The Ninth Circuit examines eight factors to determine the likelihood of confusion: (1) the strength of the trade dress; (2) the proximity or relatedness of the two goods; (3) the marks' similarity in appearance, sound, and meaning; (4) evidence of actual confusion; (5) the degree to which the parties' marketing channels converge; (6) the type of goods and the degree of care customers are likely to exercise in
(a) Strength of the Marks
The strength of a mark rests on its distinctiveness, which is "related to the question of secondary meaning." Aurora World, Inc. v. Ty Inc., 719 F.Supp.2d 1115, 1158 (C.D.Cal.2009). MGA has pointed to no evidence that its trapezoidal packaging obtained any distinctiveness and that consumers built an association between MGA and trapezoidal packaging. Although advertisements for MGA's products featured the products' packaging, MGA did not independently advertise the shape of its packaging, and MGA sold its products in other types of packaging, which diminished any automatic association developed by consumers. MGA has also failed to point to any evidence that its 4-Ever Best Friends heart shaped packaging built an association in the minds of consumers, an inherently unbelievable proposition in light of the fact that MGA hadn't released its product to market at the time that Mattel allegedly infringed the trade dress.
(b) Proximity or Relatedness of Goods
The proximity or relatedness of goods is relevant to determine whether the products "are likely to be connected in the mind of a prospective purchaser." Fleischmann Distilling Corp. v. Maier Brewing Co., 314 F.2d 149, 159 (9th Cir. 1963). The Bratz doll is a fashion doll and MGA alleges that Mattel sold its fashion dolls in the same type of packaging. The goods are often sold through the same major retailers, like Toys 'R Us and Wal-Mart and, sometimes, even on the same shelves. It's possible that the Bratz dolls and Mattel's fashion dolls belong to different sub-categories of the fashion doll market, but neither party has identified any such sub-categories, nor does the evidence show this to be the case. The Court accordingly finds no genuine issue of material fact as to whether the goods are related and proximate. Cf. Aurora World, Inc., 719 F.Supp.2d at 1160 ("Both Ty and Aurora market small plush toys . . . It is likely, therefore, that this factor will weigh in favor of a finding of a likelihood of confusion.").
(c) Similarity of the Marks
Mattel's allegedly infringing packaging isn't particularly trapezoidal; the bases are only barely wider than the top. Mattel's packaging comes in different color schemes, uses different fonts, uses different display windows, and most critically, clearly display the product names in large, prominently placed letters all around the package, including on the front of the package. The presence of these names all over the package "goes far to eliminate confusion of origin." Bose Corp. v. Linear Design Labs, Inc., 467 F.2d 304, 309 (2d Cir.1972).
MGA responds that consumers may still suffer from "initial interest confusion," which occurs when an alleged infringer draws consumers to its products through the use of another's trade dress, "even though no actual sale is finally completed," Brookfield Comm'ns, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1062 (9th Cir.1999), as well as "reverse confusion," which occurs when "consumers doing business with the senior user might mistakenly believe they are dealing with the junior user." Dreamwerks Production Group, Inc. v. SKG Studio, 142 F.3d 1127, 1130 (9th Cir.1998). But the Sleekcraft test measures this sort of confusion, and the fact that Mattel's product names appear in large, colored lettering that can be viewed from a distance leaves no issue of
The Wee 3 Friends product sold by Mattel doesn't use a heart shaped package. The design of the doll name is different, the viewing window is different, the color schemes are different, and the words "Mattel" and "Barbie" appear on the package. Other than the fact that Mattel's product may be a worse version of the MGA product—dolls sold together as "friends"—there is no genuine issue of material fact as to the similarity to any of the elements, and especially not the combination, of MGA's trade dress.
(d) Actual Confusion
MGA has not cited to evidence of actual confusion as to either the trapezoidal packaging or heart shaped packaging used in connection with the sale of Wee 3 Friends. Its failure to do so doesn't weigh against a likelihood of confusion. See Academy of Motion Picture Arts & Sciences v. Creative House Promotions, Inc., 944 F.2d 1446, 1456 (9th Cir.1991) ("[A]ctual confusion is not necessary to a finding of likelihood of confusion under the Lanham Act.").
(e) Marketing Channels
It is undisputed that MGA and Mattel share the same marketing channels, though there may not be direct overlap between the marketing channels used by the two companies. This factor thus weighs in favor of a likelihood of confusion.
(f) Types of Goods and Consumers
"It is generally assumed that consumers with expertise or who are buying expensive products or services exercise a greater degree of care when doing so and are thus less easily confused." Edge Wireless, LLC v. U.S. Cellular Corp., 312 F.Supp.2d 1325, 1333 (D.Or.2003) (citing Brookfield Comm's, 174 F.3d at 1060 ("What is expected of the reasonably prudent consumer depends on the circumstances. We expect him to be more discerning-and less easily confused-when he is purchasing expensive items")).
Fashion dolls are remarkably expensive. For example, MGA's Bratz Funk `N' Glow dolls with "fashion accessories and a poster" can sell for $23.94 even when on sale. Pembleton Dec., Ex. B at 12. The accessories and play sets that accompany the Bratz dolls were advertised at a cost as high as $249.99. Id., Ex. A at 5 (discussing costs of "deluxe, three-story apartment [that] comes with real working lights and elevator, plus 60 accessories"). MGA characterizes these prices as "inexpensive," which reveals a lack of perspective about the financial challenges faced by most families in this country.
More importantly, this is not a case involving the purchase of "lower cost items like wine and cheese," in which consumers aren't likely to be careful about the products they buy. Compare E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1293 (9th Cir.1992). All the evidence shows that the intended market for these products—young females—are remarkably aware of the differences between Bratz and Barbie. For example, at the hearing on these motions, counsel for MGA remarked that the Bratz dolls "meant a lot" to the girls who chose to purchase them. It even cites an internal Mattel memorandum that characterized the Bratz dolls as a product that was "relevant and resonated with older girls." Ex. 1805 to MGA MSJ
(g) Mattel's Intent
There is no genuine issue of material fact about Mattel's intent in selecting the trapezoidal packaging. "When an alleged infringer knowingly adopts a mark similar to another's, courts will presume an intent to deceive the public." Official Airline Guides, 6 F.3d 1385, 1395 (9th Cir. 1993). MGA claims there is circumstantial evidence of Mattel's bad intent, because Mattel has long been on notice of MGA's interest in ensuring the exclusive use of trapezoidal packaging. However, Mattel copied no other elements of the trade dress other than the trapezoidal shape: it did not select the color schemes, configurations, package window, or lettering used by MGA. Moreover, Mattel has presented evidence that it used the trapezoidal packaging in compliance with the requirements of its licensor, to which MGA has offered no meaningful response.
Nor is there a genuine issue of material fact as to whether Mattel selected the Wee 3 Friends packaging in an attempt to benefit from MGA's goodwill. There is ample evidence that Mattel proceeded with the Wee 3 Friends product line in an attempt to cut MGA's 4-Ever Best Friends product off at the pass, however. Some of Mattel's internal communications reveal a paranoia about the competitive threat posed by MGA, whose management and product development efforts were surpassing Mattel's at the time that Wee 3 Friends was released. For example, Mattel obtained "confidential information from a reliable source" about the 4-Ever Best Friends dolls, which "came in a heart-shaped package with the dolls positioned on the left and right side of the package with chotzkas in the middle." Ex. 2114 to MGA MSJ. Mattel rapidly developed the Wee 3 Friends product, Ex. 8754 to MGA MSJ, but failed anyway, when retailers recognized that its product simply "knocked off MGA." Ex. 2105 to MGA MSJ. These emails may prove Mattel's uninventive product development, but they do not show a likelihood of consumer confusion for a simple reason: Mattel's wrongdoing was performed during a period of time in which MGA's 4-Ever Best Friends product had not even been released to market.
(h) Likelihood of Product Expansion
Neither party discusses the likelihood of product line expansion.
For the foregoing reasons, the Court GRANTS Mattel's Motion as to MGA's trade dress infringement claims related to trapezoidal packaging and the 4-Ever Best Friends product packaging. There is no genuine issue of material fact that neither type of trade dress was distinctive, non-functional, or that Mattel's alleged use of the trade dress created a likelihood of consumer confusion.
MGA also claims that Mattel's use of its asserted trade dress constituted trade dress dilution in violation of 15 U.S.C. § 1125.
There is no genuine issue of material fact that trapezoidal packaging did not have a "powerful consumer association" with MGA. The Federal Trademark Dilution Act identifies four factors to consider when evaluating the famousness of a mark: "(1) [t]he duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties; (2) [t]he amount, volume, and geographic extent of sales of goods or services offered under the mark; (3) [t]he extent of actual recognition of the mark; [and] (4) [w]hether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register." 15 U.S.C. § 1125(c)(2)(A).
Other than the fact that MGA registered its trade dress (the Court will not defer to the findings of the USPTO for the reasons discussed above), and the obvious volume of sales of the Bratz dolls, MGA has identified no evidence specific to the trapezoidal packaging itself. Dozens of Bratz advertisements attached to the Pembleton declaration make no mention of MGA's trapezoidal packaging. Nor has MGA identified any consumer surveys that indicate an association between the trapezoidal packaging and MGA. MGA notes that its corporate designee summarily testified that the trapezoidal mark "became" famous, but he was unable to substantiate that assertion and provided no time frame for the fame of the trapezoidal packaging. Contrary to MGA's unsubstantiated assertion, the mere shape of its trapezoidal packaging wasn't inherently distinctive or distinctive by virtue of secondary meaning, let alone famous.
To prevail on its dilution claim, MGA would also need to establish that Mattel's mark was "identical, or nearly identical, to the protected mark." Nissan, 378 F.3d at 1011. It's true that Mattel also used trapezoidal packaging, but its trapezoids did not match the dimensions or color schemes of MGA's trapezoids. In fact, Mattel's trapezoidal packages didn't even resemble each other. Compare Declaration of Helena Mills in Support of Mattel MSJ, Ex. 1 with Declaration of Jill Nordquist in Support of Mattel MSJ, Ex. 10 with id., Ex. 14.
MGA also asserts a dilution claim pursuant to Cal. Bus. & Prof.Code § 14330, which was repealed during the pendency of
Mattel's motion is granted as to MGA's dilution claim.
VII. MGA's Unfair Competition Claim
MGA alleges that Mattel engaged in common law unfair competition, as well as unfair competition in violation of Cal. Bus. & Prof.Code § 17200. MGA alleged a litany of wrongdoing in its original complaint, though many of those allegations have been abandoned. MGA's operative allegations include: (1) Mattel's use of trapezoidal packaging; (2) Mattel's copying of the 4-Ever Best Friends trade dress; (3) Mattel's delivery of letters to former employees reminding them of their obligation to keep secret Mattel's confidential information; (4) Mattel's threats against licensees, distributors, and retailers who did business with MGA; (5) Mattel's attempts to buy up the supply of doll hair in order to crowd MGA out of the market; and (6) Mattel's manipulation of industry research groups whose ratings are critical to establishing MGA's (and any other manufacturer's) credibility in the toy industry.
A. Standing Under Business and Professions Code Section 17200
Mattel argues MGA lacks standing to bring this claim. To have standing to bring this claim, MGA must establish that it suffered both "injury in fact" and "a loss of money or property caused by unfair competition." Peterson v. Cellco P'ship, 164 Cal.App.4th 1583, 1590, 80 Cal.Rptr.3d 316 (2008). A loss of money is ordinarily demonstrated through proof that plaintiff "parted, deliberately or otherwise, with some identifiable sum formerly belonging to him or subject to his control." Silvaco Data Sys., 184 Cal. App.4th at 244, 109 Cal.Rptr.3d 27. A plaintiff suffers a loss of property when it "has parted with some particular item of property" that it "formerly owned or possessed." Id. "Section 17200 does not require that a plaintiff prove that he or she was directly injured by the unfair practice or that the predicate law provides for a private right of action." Gregory v. Albertson's, Inc., 104 Cal.App.4th 845, 851, 128 Cal.Rptr.2d 389 (2002).
There is a genuine issue of material fact as to whether MGA lost money as a result of Mattel's obstruction of its relationships with licensees and distributors. MGA's licenses with its retailers were themselves "property" of which Mattel's alleged conduct deprived MGA. MGA also expended tremendous sums to generate new licenses, or paid premiums to other licensees, because of Mattel's conduct, and specifically, the conduct of Mattel's Chief Executive Officer Robert Eckert. Cf. Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 789, 111 Cal.Rptr.3d 666, 233 P.3d 1066 (2010) ("Pharmacies paid more than they otherwise would have because of a price-fixing conspiracy in violation of state law."). These are not simply harm to goodwill, but actual monetary losses suffered
B. Unfair Business Practices
"The term unfair is not precisely defined in the statute, and the courts have struggled to come up with a workable definition." Gregory, 104 Cal.App.4th at 851, 128 Cal.Rptr.2d 389. California courts have settled on a definition of unfair competition modeled on the federal antitrust laws:
Id. at 853, 128 Cal.Rptr.2d 389 (quotation marks and citation omitted).
MGA has easily raised a triable issue about whether Mattel unfairly competed. For example, Mattel may have routinely conditioned its contracts with retailers on the retailers not carrying MGA's products—classic anti-competitive behavior that potentially deprived consumers of valuable products. Mattel's Chief Executive Officer Robert Eckert also sent an email to fellow executives seeking advice about whether to terminate Mattel's business relationship with an MGA licensee. Though Eckert has claimed that Mattel's conduct is explained by its unwillingness to be associated with MGA's products, that explanation is dubious in light of Mattel's efforts to produce a line of dolls like Bratz (MyScene) and otherwise alter its product line to be more like MGA's. This conduct again may have harmed competition by potentially restricting the supply of MGA's products to consumers. Mattel is therefore simply wrong when it argues that "MGA has no admissible evidence supporting its allegations that Mattel `warned a number of companies' not to license MGA products."
C. Common Law Unfair Competition
Common law unfair competition extends beyond the mere passing off of one's goods as another's. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 192, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999). The cornerstone of a claim for common law unfair competition is "fraud . . . practiced by one in securing the trade of a rival dealer." Id. at 193, 83 Cal.Rptr.2d 548, 973 P.2d 527 (quoting Weinstock, Lubin & Co. v. Marks, 109 Cal. 529, 541, 42 P. 142 (1895)).
Other than its infirm trade dress allegations, MGA has failed to establish that Mattel engaged in fraud directed at securing MGA's business. MGA notes that Mattel engaged in fraudulent conduct by using false means to obtain access to MGA's advance viewing showrooms, but there has never been a suggestion that the common law unfair competition claim encompasses such conduct, which is the subject of MGA's counterclaims-in-reply. Even if such conduct were part of this claim, it's difficult to see how Mattel's fraudulent conduct was practiced in "securing the trade" of MGA, rather than securing access to knowledge about MGA's business. Although there is a genuine issue of material fact as to whether Mattel engaged in other anti-competitive conduct, like using its largesse to pressure retailers and licensees to terminate their relationships with MGA, such conduct does not fall under the definition of fraud.
VIII. Unjust Enrichment
MGA brings a claim for unjust enrichment. Contrary to Mattel's argument, there have been cases in which courts have allowed causes of action for unjust enrichment to proceed. Western Pac. R. Corp. v. Western Pac. R. Co., 206 F.2d 495, 498 (9th Cir.1953). However, California courts appear to be split on whether a stand alone cause of action for unjust enrichment is anything more than "a general principle, underlying various legal doctrines and remedies." Herrington v. Johnson & Johnson Consumer Companies, Inc., 2010 WL 3448531, at *13 (N.D.Cal. Sept. 1, 2010) (collecting cases). To the extent a claim for unjust enrichment is available, it generally requires proof of "receipt of a benefit and unjust retention of the benefit at the expense of another." Id. (citing Lectrodryer v. SeoulBank, 77 Cal.App.4th 723, 726, 91 Cal.Rptr.2d 881 (2000)). The benefits must generally be "conferred by mistake, fraud, coercion, or request; otherwise, though there is enrichment, it is not unjust." Nibbi Bros., Inc. v. Home Fed. Sav. & Loan Ass'n, 205 Cal.App.3d 1415, 1422, 253 Cal.Rptr. 289 (1988) (citation omitted). The claim is, in essence, quasi-contractual. See Digital Envoy, Inc. v. Google, Inc., 2005 WL 2999364, at *5 (N.D.Cal. Nov. 8, 2005).
This Court is convinced by the view that stand alone claims for unjust enrichment are simply redundant of relief already available under other existing law, and that such claims have the potential to cause needless confusion to the fact-finder and the Court. Even assuming this claim were allowed to proceed, however, MGA has failed to show any of the "quasi-contractual" elements that courts traditionally look to when evaluating claims for unjust enrichment. MGA instead relies upon Mattel's alleged conduct towards licensees and retailers—conduct that did not result in MGA conferring a benefit upon Mattel that Mattel unjustly retained.
Mattel's motion is granted as to MGA's claim for unjust enrichment.
IX. Personal Jurisdiction
Both MGA Mexico and Mattel move for summary judgment on the issue of whether this Court has personal jurisdiction over MGA Mexico.
The district court may exercise jurisdiction to the extent allowed under the law of the state in which it sits. Fed.R.Civ.P.4(k)(1). Under California's long-arm statute, jurisdiction may be exercised in accordance with the Due Process Clause of the United States Constitution. Cal. Civ.Proc. Code § 410.10. Due process minimally requires that a Court exercise jurisdiction over a defendant that has "at least `minimum contacts' with the relevant forum such that the exercise of jurisdiction `does not offend traditional notions of fair play and substantial justice.'" Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800-01 (9th Cir.2004) (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). The district court may exercise either general or specific jurisdiction over a non-resident defendant.
A. General Jurisdiction
General jurisdiction exists over a non resident defendant when "the defendant engages in `continuous and systematic general business contacts' that `approximate physical presence' in the forum state." Schwarzenegger, 374 F.3d at 801. A non resident defendant subject to general jurisdiction may be "haled into court in that state in any action, even if the action is unrelated to" his contacts with the forum
The Court may not exercise general jurisdiction over MGA Mexico, whose contacts with the California forum have been infrequent. Mattel cites the fact that MGA Mexico has made the following payments to vendors in California: (1) a $7,193 payment to a law firm; (2) a $4,639,483 payment to a shipping company; (3) a $852,774 payment to a company named Buena Vista Internacional; (4) a $323,612 payment to Summit Logistics International; (5) a $58,165 payment to Walt Disney Internet Group; and (6) $90,847 payment to a shipping agency. These small payments over a five year period are insufficient to establish general jurisdiction. Cf. Shute v. Carnival Cruise Lines, 897 F.2d 377, 381 (9th Cir.1990) (finding no general jurisdiction despite "advertising in the local media, the mailing of brochures and the payment of commissions to travel agents, the conducting of promotional seminars, and the sale of its vacation cruises to residents of Washington"); Choice Healthcare, Inc. v. Kaiser Found. Health Plan, 615 F.3d 364 (5th Cir.2010) (holding that fifty-three payments over a three-year period were not continuous and systematic contact with forum state). Nor is general jurisdiction established by the fact that MGA Mexico ships its products through California. See Emery v. BioPort Corp., 273 Fed.Appx. 694, 696 (9th Cir.2008) ("Although the fact that a product manufactured by a corporation in State A is shipped to an independent contractor for transfer from bulk tanks into marketable containers in State B may mean that the corporation is `doing business with' State B, it does not mean that the corporation is `doing business in' State B for the purposes of establishing general jurisdiction.").
Mattel argues that several MGA Mexico executives, including Larian, reside in California and also serve as MGAE's executives. This argument alludes to the case of Perkins v. Benguet Consolidated Mining Co., in which the Supreme Court affirmed the exercise of jurisdiction over a foreign corporation, whose chief executive had re-located to the forum during a time of war and thereafter "carr[ied] on . . . a continuous and systematic, but limited, part of its general business." 342 U.S. 437, 438, 72 S.Ct. 413, 96 L.Ed. 485 (1952). Mattel has offered no evidence that MGA Mexico conducts any of its general business in California. It cites the deposition of Ms. Kuemmerle, who testified that MGA Mexico's accounting is performed in California, but there is no evidence of whether this work is performed by an outside vendor, or even by MGAE. The abrupt testimony certainly does not reasonably suggest that MGA Mexico maintains any sort of business operation in California dedicated to the performance of an accounting. The fact that Larian and other MGAE executives reside in California is most relevant to whether the Court can exercise jurisdiction over those individuals; it is not dispositive to the propriety of personal jurisdiction over MGA Mexico.
B. Specific Jurisdiction
The Ninth Circuit applies a three part test to determine whether the exercise of specific personal jurisdiction is proper:
Schwarzenegger, 374 F.3d at 802 (quoting Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir.1987)).
Either purposeful availment of the forum or the purposeful direction of activities towards the forum can satisfy the first prong. "A purposeful availment analysis is most often used in suits sounding in contract. A purposeful direction analysis, on the other hand, is most often used in suits sounding in tort." Schwarzenegger, 374 F.3d at 802 (internal citations omitted).
Purposeful availment can be shown by a defendant "doing business in a forum state . . ., such as executing or performing a contract there." Id. at 802. By availing itself of the forum state's benefits, the non-resident defendant "must—as quid pro quo—`submit to the burdens of litigation in that forum.'" Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) and Cote v. Wadel, 796 F.2d 981, 984 (7th Cir.1986)). The only evidenced face-to-face interactions between Machado, Vargas, Trueba, and any of MGA Mexico's executives occurred in New York and Mexico. The only employment relationship between the three defecting Mattel Servicios employees and MGA Mexico was based in Mexico. Mattel nevertheless argues that MGA Mexico purposefully availed itself of the California forum as a result of (1) Larian and Park's communications via email, phone, and letter with the three Mattel Servicios employees; (2) the three Mattel Servicios employees' attempt to simultaneously execute their MGA Mexico employment agreements over the phone with Park, while Park was in California. There is no evidence that any of this conduct actually took place in California, however. For example, Larian communicated with Machado while Larian was in New York. Larian interviewed the three Mattel Servicios employees in Mexico City. And there is no evidence that Park was in California at the time the employment contracts were executed. Mattel has therefore failed to establish, as is its burden, the absence of a genuine issue of material fact as to whether MGA Mexico purposefully availed itself of the California forum.
Purposeful direction is established by evidence that the defendant "(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state." Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1111 (9th Cir.2002). Both parties appear to acknowledge that this issue turns on whether (1) the three Mattel Servicios employees stole Mattel's documents in California; and (2) MGA Mexico, through its agents, directed that conduct. The Court has already determined that there are genuine issues of material fact on both sub-issues. Since these issues of fact run to the heart of Mattel's counter-claim for misappropriation of trade secrets, "it is preferable that this determination be made at trial." Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1285 n. 2 (9th Cir.1977).
The other two prongs of the Ninth Circuit's test have already been addressed by the Court's order on the Motions to Dismiss.
Both MGA Mexico and Mattel's motions for summary judgment are denied on this issue.
X. MGA's Affirmative Defenses
Mattel moves for summary judgment on MGA's affirmative defenses. Contrary to Mattel's argument, MGA is entitled to reassert previously waived affirmative defenses in response to Mattel's amended pleading. See Massey v. Helman, 196 F.3d 727, 735 (7th Cir.1999) ("[W]hen a plaintiff files an amended complaint, the new complaint supersedes all previous complaints and controls the case from that point forward . . . the amended complaint opens the door for defendants to raise new and previously unmentioned affirmative defenses.").
MGA does not oppose Mattel's motion for summary judgment as to the following affirmative defenses: (1) bad faith claim of misappropriation; (2) good faith; (3) lack of authority; (4) lack of standing; (5) spoliation; and (6) no direct infringement.
Mattel's motion is granted as to MGA's affirmative defense brought pursuant to 17 U.S.C. § 205(d), which provides that "[a]s between two conflicting transfers. . . the later transfer prevails first if recorded first . . . and if taken in good faith for valuable consideration or on the basis of a binding promise to pay royalties, and without notice of the earlier transfer." Mattel claims that Bryant assigned his copyrights to Mattel via his Inventions Agreement, a document Mattel recorded on August 4, 2008. MGA, on the other hand, has never recorded its employment agreement with Bryant.
Mattel's motion is denied as to MGA's defense of joint authorship. "[A] joint work is a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." Ashton-Tate Corp. v. Ross, 916 F.2d 516, 520 (9th Cir.1990) (quoting 17 U.S.C. § 101). "A collaborator's contribution will not produce a joint work, and a contributor will not obtain a co-ownership interest, unless the contribution represents original expression that could stand on its own as the subject matter of copyright." Id. at 521 (quoting P. Goldstein, Copyright: Principles, Law and Practice, § 4.21 p. 379 (1989)). Contrary to Mattel's argument, MGA does not merely argue that it enhanced Bryant's works. MGA argues—and there is a genuine issue of material fact as to whether—MGA contributed original expression (and perhaps the only original expression) to some of the works over which Mattel claims ownership.
For the reasons discussed in the portion of this order that addresses the counter-claim for trade secret misappropriation, Mattel's motion is denied as to MGA's defense that Mattel's alleged trade secrets were readily ascertainable.
Mattel's motion is denied as to MGA's affirmative defense that "Bryant made the decision not to disclose Bratz to Mattel independent of MGA." Though this affirmative defense appears to be somewhat redundant of MGA's arguments against Mattel's counter-claim for intentional interference with contractual relations, Mattel does not challenge it on those grounds. Mattel argues there is no evidence of MGA's defense, but the possibility that Bryant sat on the Bratz concept for over a year after re-joining Mattel, and continued to market the concept to other toy manufacturers, suggests that he never had any intention of disclosing it to Mattel.
Mattel's motion is granted in part and denied in part as to MGA's defenses of
Mattel's motion is denied as to MGA's laches defense for the reasons set forth in the section of this Order discussing the statutes of limitations. Contrary to Mattel's argument, an unreasonable delay in claiming ownership to the Bratz drawings and sculpt allowed MGA to continue building the brand and enhancing its value through the investment of significant human and material resources. The prejudice to MGA from Mattel's potential delay is obvious.
Mattel's motion is denied as to MGA's comparative fault and failure to mitigate affirmative defenses. At least some Ninth Circuit courts have allowed this sort of contention to be pled as an affirmative defense, and Mattel concedes their relevance to the fact-finder's calculation of damages. See, e.g., J & J Sports Productions, Inc. v. Enedina Soto, 2010 WL 3911467, at *2 (S.D.Cal. Sept. 28, 2010).
Mattel's motion is granted as to MGA's unclean hands affirmative defense, but only as it relates to Mattel's counter-claims arising out of Bryant's conduct. Contrary to MGA's argument, Mattel's alleged theft of post-production Bratz advertising materials from MGA's showrooms has nothing to do with the "matter for which [Mattel] seeks a remedy," which in this case is the Bryant's alleged non-disclosure of the Bratz concept, Bryant's work for MGA while employed by Mattel, and Bryant's disclosure of the Bratz concept to MGA. See Kendall-Jackson Winery, Ltd. v. Superior Court, 76 Cal.App.4th 970, 978, 90 Cal.Rptr.2d 743 (1999). Mattel's motion is otherwise denied as to this affirmative defense.
Mattel's motion is denied as to MGA's affirmative defense of justification. Mattel argues that its counter-claims are limited to MGA's inducement of Mattel's employees to "steal[ ] . . . confidential and trade secret information," but misstates its own pleading in the process. In fact, the 4AAC dedicates extensive discussion to MGA's recruitment of Mattel's employees, and incorporates these factual allegations in support of the broad and vague counter-claims.
XI. Racketeer Influenced and Corrupt Organizations Act
Mattel and MGA accuse each other of violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, thereby causing injury to business or property that is recoverable under 18 U.S.C. § 1964(c).
RICO was passed to curb the corruption and misuse of America's enterprises, which include not only the partnerships and corporations that propel the economy forward, but also the "illegal gambling businesses" and "loan sharking operation[s]" that mark the nation's excesses. United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) (discussing 18 U.S.C. § 1961(4)). The statute seeks to protect enterprises from being infiltrated and operated through acts of racketeering like murder, extortion, bribery, fraud, and obstruction of justice. 18 U.S.C. § 1961(1). A pattern of racketeering (more than one criminal act within a ten year period), or its proceeds, may not be used to obtain any interest in an enterprise. 18 U.S.C. § 1962(a)-(b). Nor may one conduct, or participate in the conduct, of an enterprise's affairs through a pattern of racketeering. 18 U.S.C. § 1962(c).
A. Section 1964(c) Elements— Mattel's Counter-Claims
The RICO statute creates a private right of action that allows "any person injured in his business or property by reason of a violation" of the statute's substantive provisions to recover treble damages, attorneys' fees, and costs. 18 U.S.C. § 1964(c). To prevail on its civil RICO claims, Mattel must prove (1) injury to business or property (2) by reason of the alleged violations of RICO's substantive provisions. Holmes v. Sec. Investor Protection Corp., 503 U.S. 258, 267-68, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).
Mattel alleges that each of the counter-defendants to its first and second counter-claims committed hundreds of predicate acts of racketeering, which can be organized into the following categories of misconduct: (1) mail fraud; (2) wire fraud; (3) spoliation and concealment of evidence; (4) obstruction of justice; (5) violations of the Travel Act; and (6) criminal copyright infringement. The alleged acts of mail fraud and wire fraud allegedly deprived Mattel of its property rights in its trade secret materials, as well as the honest services of its employees. Mattel also purports to identify some, but not all, of these acts of racketeering in the 4AAC, as well as the exhibits attached to its summary judgment briefing.
1. Business or Property
Mattel identifies five categories of injury to its business or property caused by these alleged acts: (1) "loss of [ ] entitlement to business relations unhampered by unlawful schemes"; (2) "lost sales and profits caused by infringing sales based on stolen confidential information"; (3) "loss of the opportunity to exploit Mattel's own property, and loss of the exclusive rights to that property"; (4) "theft and use of Mattel's valuable confidential and proprietary materials and information"; and (5) "salaries Mattel paid to its employees during their periods of wrongful disloyalty." Mattel Opp'n to MGA MSJ at 92:13-19.
"RICO does not provide a cause of action for all types of injury to property interests, but only for injuries resulting in `concrete financial loss.'" Diaz v. Gates, 420 F.3d 897, 898 (9th Cir.2005) (quoting Oscar v. University Students Co-operative Ass'n, 965 F.2d 783, 785 (9th Cir.1992) (en banc)). To make this showing, a plaintiff must first establish the existence of a specific business or property interest, "a categorical inquiry typically determined by reference to state law." Diaz, 420 F.3d at 900. The plaintiff must also substantiate "some tangible financial loss" that corresponds with the loss of that business or property interest. Id. To determine whether Mattel has evidence of injury to business or property, the Court must first determine whether Mattel has alleged injury to a business or property interest recognized under state law and then determine whether Mattel has produced evidence that it sustained a "concrete financial loss" that corresponds with such injury.
(a) Trade Secret Materials
California recognizes a property interest in the confidentiality and exclusive use of trade secret information. See Silvaco, 184 Cal.App.4th at 236, 109 Cal.Rptr.3d 27. To the extent Mattel's trade secret materials were misappropriated, it suffered an injury to business or property. See Formax, Inc. v. Hostert, 841 F.2d 388, 390 (Fed.Cir.1988) (citing Carpenter v. United States, 484 U.S. 19, 25, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987)); Ruckelshaus, 467 U.S. at 1001-04, 104 S.Ct. 2862; and Bd. of Trade of Chicago v. Christie Grain
Mattel cannot establish that it suffered any concrete financial loss as a result of the deprivation of its use of the Bratz works. Mattel has identified no business opportunities, or even categories of business opportunities, that it would have pursued if it had retained exclusive use of the Bratz works. Nor can Mattel establish that it suffered any "concrete financial loss" as a result of the lost exclusive use or confidentiality of any of the non-Bryant trade secrets. Unlike the plaintiff in Diaz, who "could not fulfill his employment contract or pursue valuable employment opportunities" as a result of his wrongful imprisonment, 420 F.3d at 900, Mattel was not foreclosed from using its materials, like market research and pricing matrices, which continued to reside on Mattel's servers.
Mattel responds with three types of arguments: (1) the loss of exclusive use of confidential materials is per se concrete financial injury; (2) Mattel's lost exclusive use of confidential materials resulted in lost market share and lost profits; and (3) Mattel's lost exclusive use of confidential materials resulted in lost opportunity.
First, Mattel cites a portion of Ruckelshaus in which the Supreme Court observed that "[t]he economic value of [the property right in the exclusive use of trade secret materials] lies in the competitive advantage over others that [the owner] enjoys by virtue of its exclusive access to the data." 467 U.S. at 1011-12, 104 S.Ct. 2862. But Ruckelshaus, a non-RICO case, does not establish a per se rule that every trade secret plaintiff has suffered concrete financial loss that gives rise to a claim under section 1964(c); the case merely supports the now-unremarkable proposition that a company has a property interest in the exclusive use of its trade secret materials. The loss of "competitive advantage" that sometimes flows from the deprivation of exclusive use is nothing more than a non-concrete "injury to a valuable intangible property interest." See Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir.1990).
Second, Mattel argues that lost profits flowed from the injury to its business or property interest in the use and confidentiality of its trade secrets. These lost profits, Mattel contends, resulted from a decline in market share associated with (1) the success of the misappropriated Bratz doll line; (2) MGA's improvements to its infrastructure and systems executed through the use of Mattel's materials; and (3) MGA's use of misappropriated information to beat Mattel's unreleased products to market. Mattel's expert submitted a declaration concluding that MGA's Bratz sales caused Mattel to lose "revenues of at least $773.7 million and lost profits of at least $237.7 million" between 2001 and 2009. Declaration of Michael Wagner ¶ 37. For reasons discussed below, the causal link between Wagner's loss calculations and the injury to Mattel's property interest is too attenuated to support a civil RICO claim. However, Wagner is also silent about the specific contracts, relationships, or sales negatively impacted by the alleged misappropriation of Mattel's trade secrets. Cf. Imagineering, Inc. v. Kiewit Pacific Co., 976 F.2d 1303, 1310-11 (9th Cir.1992) ("Although plaintiffs assert that if specified contracts had not gone to Kiewit those contracts would have been awarded to the plaintiffs' prime contractors, that cannot be established."). The evidence is to the contrary: Mattel released the allegedly misappropriated toy concepts (e.g., MyScene Swappin' Styles),
Third, Mattel argues that the Supreme Court and Ninth Circuit have endorsed section 1964(c) claims based upon the deprivation of future profits or business opportunity. However, an examination of the decisions cited by Mattel reveals their inapplicability to the present fact situation. In Diaz, the Ninth Circuit held that the civil RICO plaintiff had shown "concrete financial loss" because he lost the ability to fulfill his employment contract and seek other employment as a result of his wrongful imprisonment. Citing Diaz, the panel in Guerrero v. Gates concluded that the plaintiff's lost opportunity "to pursue gainful employment" during the period of his wrongful imprisonment constituted an injury to a property interest. See Guerrero, 442 F.3d 697 (2006). The panel did not separately discuss the "concrete financial loss" requirement, and its earlier (superseded) opinion indicates that the concreteness of the plaintiff's financial loss was not at issue. See Guerrero v. Gates, 357 F.3d 911, 920 (9th Cir.2004), superseded by Guerrero, 442 F.3d 697 (2006). The Supreme Court case cited by Mattel likewise concluded that the plaintiffs had suffered an injury to business or property when they were deprived of "valuable liens they otherwise would have been awarded." See Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639, 650, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008) (emphasis added).
Each of Mattel's cited authorities involved the actual deprivation of the use of property, which resulted in concrete financial loss. Mattel attempts to take these holdings one step further when it argues that the deprivation of exclusive use results in concrete financial loss. However, the holder of a trade secret does not ordinarily suffer any lost opportunity unless it can provide some concrete example of how it would have exploited its exclusive possession of the trade secret. See Litton Sys., Inc. v. Ssangyong Cement Indus. Co., Ltd., 107 F.3d 30, at *10 (Fed.Cir. Feb. 13, 1997) (unpublished) (holding that plaintiff deprived of exclusive use of trade secret materials did not suffer concrete financial loss even assuming it lost the ability to license such materials' use). Just as Mattel cannot identify any relationships or contracts that substantiate the concreteness of its lost profits, so too does Mattel fail to establish the existence of any specific business opportunities that it would have exploited had it retained the exclusive use of its trade secret materials. Its claimed injury is even less concrete than the plaintiff's in Litton.
Mattel cannot show that it suffered concrete financial loss, either in the form of lost opportunity or lost profits, as a result of the deprivation of its property interest in the exclusive use of its trade secret materials. Its opposition and the evidentiary record are silent on the issue, and summary judgment must therefore be granted on Mattel's RICO counter-claims to the extent predicated upon injury to the exclusive use and confidentiality of its trade secrets.
(b) Employee Salaries
Mattel had a statutorily created property interest in the honest services of its employees. See 18 U.S.C. § 1346. However, "the deprivation of `honest services' does not constitute concrete
Mattel fails to identify the property interest that corresponds with its claimed loss. Diaz, 420 F.3d at 900 (distinguishing Doe v. Roe, 958 F.2d 763 (7th Cir.1992) on the grounds that "Doe, unlike Oscar, suffered some tangible financial losses as a result of her emotional distress but, like Oscar, failed to allege harm to any property interest valid under state law"). The two non-binding decisions cited by Mattel applied Second Circuit authority for the proposition that an employer that suffers injury to the "commercial relationship" with its employees is entitled to recover the disloyal employees' full salaries. See City of N.Y., 889 F.Supp. at 105; see also Curiale, 883 F.Supp. at 949-50. This rule does not apply in California or in this Circuit.
Mattel's attempt to circumvent the Ninth Circuit's observation that concrete financial losses don't flow from the deprivation of honest services is unconvincing. With the possible exception of the loss of exclusive use and confidentiality of the Bratz trade secret materials, Mattel cannot establish concrete financial loss as a result of its employees' disloyalty.
(c) Other Injuries
Mattel's other claimed injuries to business or property—lost sales and profits, lost opportunity, and "theft of valuable property"—are species of financial loss that resulted from the deprivation of Mattel's trade secrets, as well as the honest services of Mattel's employees. Pacific Gas & Elec. Co. v. San Mateo County, 233 Cal.App.2d 268, 274, 43 Cal.Rptr. 450 (1965) (holding that the "measure of damage to an interest in real property . . . may be the cost of making repairs; [and] the loss of use of the property; lost profits"); see also Diaz, 420 F.3d at 900 (identifying property interest as "prospective business relations" and concrete financial loss as plaintiff's lost opportunity to "fulfill his employment contract or pursue valuable employment").
Mattel claims that future profits and business opportunities are stand alone property interests, since California prohibits interference with "current and prospective contractual relations." Mattel Opp'n to MGA MSJ at 92:23-24 (citing Diaz, 420 F.3d at 900). However, Mattel cannot prove that the deprivation of its trade secrets and employees' honest services caused concrete financial injury to its business relations. Unlike the plaintiffs in Bridge, Diaz, and Guerrero, Mattel has no evidence that it lost any concrete opportunities or other "specific identifiable profits" as a result of the loss of exclusive use of its non-Bratz trade secrets. See Imagineering, 976 F.2d at 1311 (holding that "speculative injury" is not recoverable under section 1964(c)).
2. "By Reason Of"
The Supreme Court has noted the "unlikelihood that Congress meant"
Mattel does not explain how each alleged act of racketeering caused injury. Mattel instead asserts that "defendants stole Mattel's confidential, copyrighted, and trade secret materials, used Mattel employees to produce competing products based on and infringing of the stolen materials, and sold those products in direct competition with Mattel for years and to this day." Mattel Opp'n to MGA MSJ at 95:8-12. This assertion does not differentiate between the injury caused by each counter-defendant's alleged pattern of racketeering acts, but considers the acts of racketeering en masse. The injuries caused by the combination of all of the alleged predicate acts are potentially recoverable only under Mattel's second counter-claim of a conspiracy to conduct the affairs of an enterprise through a pattern of racketeering. More importantly, and for the reasons discussed below, the vast majority of Mattel's claimed injuries to business or property (including those that aren't cognizable) were not directly caused by the alleged patterns of racketeering, whether considered individually or as a group.
(a) Injury to Property Interest in Bratz Trade Secret
Mattel argues the deprivation of its property interest in the Bratz trade secret corresponds with two species of financial loss: (1) lost opportunity to exploit the concept; and (2) lost profits caused by MGA's eventual sale of the product. The acts of racketeering that allegedly resulted in the loss of Mattel's property interest are the predicate acts of mail fraud and wire fraud that defrauded Mattel of its property interest in the exclusive use and confidentiality of the Bratz trade secret materials. 4AAC ¶ 124(a)-(b); see also Carpenter, 484 U.S. at 24-28, 108 S.Ct. 316. Mattel has attached hundreds of alleged uses of the interstate mails and wires that, it claims, furthered this scheme to defraud it of the Bratz concept and works. 4AAC, Exs. O, P, Q, S. To purport to execute the scheme to defraud—i.e., for criminal liability under the mail and wire fraud statutes—these uses of the interstate mails or wires need only have been "incident to an essential part of the scheme." Schmuck v. United States, 489 U.S. 705, 710, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989).
The loose theory of causation inherent in the mail and wire fraud statutes cannot, as Mattel attempts, be substituted for the more demanding requirement that a predicate act of racketeering act as both a "but for" and "proximate cause" for a civil plaintiff's injury. For instance, the mail fraud and wire fraud statutes incorporate principles of foreseeability and intent. Cf. United States v. Green, 786 F.2d 247, 249 (7th Cir.1986); United States v. Martin, 228 F.3d 1, 16 (1st Cir.2000). However, a
Bryant's Pattern of Racketeering
Mattel identifies four acts of mail fraud and seven acts of wire fraud committed by Bryant. The evidence of Bryant's mail fraud allegedly includes: (1) an October 5, 2000 airborne express bill and invoice for "hollow saran straight hair samples" sent by a Japanese company to MGAE with an "attention to" Carter Bryant; (2) a February 20, 2001 email from an MGA employee to Bryant, et al., directing Bryant to send "Extra Bratz Sewn Samples" to MGA HK; (3) a February 25, 2001 email from an MGA employee to Bryant, et al., concerning Bryant's shipment of "Yarn samples for Sasha's Hat" to MGA HK; and (4) an April 10, 2001 email from an MGA employee to Bryant confirming that "[MGA] HK will be sending the 1 yard of each 2001 fabric on 4/17." See 4AAC, Ex. Q. The evidence of Bryant's wire fraud allegedly includes: (1) a September 18, 2000 fax transmission from Bryant to Kinuyo Shichijyo memorializing a phone conversation regarding "ordering a supply of  Hollow Saran hair fiber"; (2) an October 25, 2000 internal MGA email discussing the shipment of hair samples to Bryant; (3) a September 14, 2000 fax transmission from Bryant to MGA's attorney attaching Bryant's "original offer of employment with Mattel" and expressing concern about "risking suspicion" within Mattel; (4) a September 19, 2000 email from MGA's counsel to Bryant attaching a "consulting agreement"; (5) an October 4, 2000 take-it-or-leave-it email from MGA's attorney to Bryant's attorney attaching an edited "Bryant/MGA Agreement"; (6) an October 4/5, 2000 email exchange between Bryant and Larian expressing shared excitement about the Bratz concept; and (7) an August 11, 2003 fax transmission from an attorney to Bryant discussing a patent application for "changeable doll footgear and feet." Id., Ex. V.
No reasonable fact-finder could conclude that any of these interstate mail and wire transmissions, or other communications of their type, were a "but for" cause, let alone a proximate cause, of the injury to Mattel's property interest in the exclusive use and confidentiality of the Bratz trade secret concept. The vast majority of the communications post-date Bryant's employment with MGA, at which point the Bratz works had indisputably been disclosed. Moreover, every one of the communications post-date the September 1, 2000 meeting between MGA and Bryant, which Mattel claims was the last possible date on which
Nor did Mattel suffer injury to its property interest in the exclusive use and confidentiality of the Bratz trade secret works by reason of Bryant's other alleged acts of racketeering. Bryant is alleged to have engaged in acts of spoliation and concealment of evidence, including (1) concealing Bratz's origins from the public and concealing his "future plans" from Mattel supervisors; (2) altering the Bratz sketches to make it appear as if they had been created prior to his time at Mattel; (3) tearing drawings out of his sketchbook to "conceal their creation at Mattel"; and (4) destroying evidence on his MGA-issued computer. 4AAC ¶¶ 29-30, 95, 96. Bryant also allegedly engaged in obstruction of justice through the commission of such acts. Id. ¶ 124(d). However, none of these particular "cover up" activities have a "direct relation" with the injury to Mattel's property interest in the exclusive use and confidentiality of its trade secret materials. Anza, 547 U.S. at 457, 126 S.Ct. 1991. The acts of obstruction alleged by Mattel, including Bryant's failure to inform his supervisors of his subsequent employment, post-dated the disclosure of the Bratz trade secret materials and it would be impossible "to ascertain the amount of [Mattel's] damages attributable to" Bryant's allegedly obstructive conduct. Holmes, 503 U.S. at 269, 112 S.Ct. 1311.
Bryant's final act of racketeering was criminal copyright infringement. Mattel alleges, in essence, that Bryant continued to "reproduce[ ], create derivative works from and otherwise infringe upon the exclusive rights of Mattel in its protected works without Mattel's authorization." 4AAC ¶¶ 124(f), 145. Once more, Mattel has no evidence, nor is it reasonable to conclude, that Bryant's alleged copyright infringement, which was committed after he left Mattel, was a but for cause for the injury to Mattel's confidentiality and exclusive use of the Bratz trade secret materials, both of which were disclosed on September 1, 2000 at the latest.
MGAE and Larian's Patterns of Racketeering
No reasonable fact-finder could conclude that Mattel suffered injury to its property interest in the exclusive use and confidentiality of the Bratz trade secret by reason of MGAE or Larian's alleged pattern of racketeering. The 4AAC treats the acts of racketeering committed by MGAE and Larian as one and the same. 4AAC ¶¶ 124. MGAE and Larian are alleged to have committed the following predicate acts: (1) mail fraud; (2) wire fraud; (3) spoliation and concealment of evidence; (4) obstruction of justice; (5) violations of the Travel Act; and (6) criminal copyright infringement.
Mattel identifies fifteen exhibits that purport to evidence MGAE and Larian's alleged acts of mail fraud. The exhibits that bear a relation to Bryant or Bratz can be categorized as follows: (1) representations by Larian to the media and to federal institutions that omit or conceal Bryant's involvement with the Bratz dolls; (2) copyright applications for the four first generation Bratz characters, as well as a group drawing; and (3) shipments of the Bratz production sculpt and a Diva Starz doll from MGAE to MGA HK. 4AAC, Ex. O.
The vast majority of these mail and wire communications post-date the September 1, 2000 meeting between Bryant and Larian at MGAE's offices, which was the final meeting at which the Bratz trade secret materials could have been disclosed. Only one batch of the mail or wire communications pre-dated that September 1, 2000 meeting: the phone calls between Marlow and Bryant, dated August, 2000, reflected in the call logs cited by Mattel. However, no reasonable fact-finder could conclude that these phone communications constituted predicate acts of racketeering that were a "but for" or "proximate" cause of the injury to Mattel's property interest in the exclusive use and/or confidentiality of the Bratz trade secret materials.
First, the phone calls were made from Bryant's telephone in Mattel's California office to Marlow's telephone in Van Nuys, California. See 4AAC, Ex. S-1. These were, by definition, intrastate communications and could not have violated the wire fraud statute even if made with the purpose of executing a scheme to defraud. McCoy v. Goldberg, 748 F.Supp. 146, 154 (S.D.N.Y.1990) ("The federal wire fraud statute does not cover telephone communications between persons within the same state.").
Second, Marlow is not the same as Larian and, as Mattel has elsewhere recognized, her independent contractor relationship with MGAE rendered her professionally independent and distinct from MGAE. See Mattel Opp'n to MGA MSJ at 85:1-17 (arguing that Bryant was distinct from MGAE by virtue of his independent contractor status).
Third, no reasonable fact-finder could conclude that MGAE or Larian caused Marlow to use the wires in a manner that would serve a "but for" or "proximate" cause for the injury to Mattel's property interest in the exclusive use and confidentiality of the Bratz trade secret materials. It's worth considering what little information Mattel has discovered (over the last six years) about these phone conversations. Of the five calls from Bryant's phone to Marlow's phone in August 2000, Bryant made all five. The first four, made on August 24, 2000, lasted eighteen, twenty-four, eighteen, and forty-eight seconds. The final call, made on August 29, 2000 lasted three minutes and six seconds. As Mattel's counsel recognized at the hearing on these motions, this is a fundamentally visual case. It is unreasonable to conclude that Bryant described the Bratz trade secret works to Marlow over the phone in a manner that would have caused injury to Mattel's property interest in the exclusive use or confidentiality of the materials.
Nor could a reasonable fact-finder conclude that MGAE and Larian put Marlow up to the task of waiting with baited breath for a phone call from Bryant in which she would induce him to disclose trade secret materials of which MGA was not already aware. Mattel has elsewhere argued precisely the opposite, by claiming that "by early summer of 2000, Bryant was working with MGA." Mattel's Statement of
Mattel also cannot establish proximate cause between MGAE and Larian's acts and the ultimate disclosure of the Bratz works, because Bryant's eventual decision to disclose the materials, coupled with Marlow's work in facilitating the meeting, were powerful intervening forces, and Mattel cannot rest its theory of liability on "the independent actions of third and even fourth parties" to its counter-claim against MGAE and Larian. Hemi Group, 130 S.Ct. at 992.
The remaining uses of the mails or wires, as noted earlier, occurred after the September 1, 2000 meeting and after Bryant left Mattel for MGA. These alleged interstate uses of the mails and wires temporally correspond with MGAE and Larian's other alleged predicate acts, which are obstruction of justice, spoliation, violations of the Travel Act, and criminal copyright infringement. The acts of obstruction and spoliation include the alleged destruction of evidence and misrepresentations to conceal the origins of Bratz. 4AAC ¶¶ 29-30, 54, 90-121. For reasons discussed above, these post-September 1, 2000 acts cannot constitute "but for" causes of the injury to Mattel's interest in the exclusive use and confidentiality of the Bratz materials. MGAE and Larian's alleged violations of the Travel Act, 18 U.S.C. § 1952—bribing Mattel employees using interstate facilities—do not include Bryant and, even if they did, cannot constitute a "but for" or "proximate" cause for Bryant's disclosure of the Bratz materials. And the alleged acts of criminal copyright infringement also (obviously) post-date Bryant's disclosure.
No reasonable fact-finder could conclude that Mattel suffered injury to its interest in the exclusive use and confidentiality of the Bratz materials by reason of MGAE and Larian's alleged patterns of racketeering activity.
MGA HK's Pattern of Racketeering
MGA HK is alleged to have engaged in seven acts of mail fraud and four acts of wire fraud, all of which concern the production of the Bratz dolls, and all of which occurred after Bryant disclosed the Bratz works to MGA. 4AAC, Exs. P, T. MGA HK is also alleged to have committed predicate acts of criminal copyright infringement, which necessarily occurred after Bryant's disclosure of the Bratz works. For the reasons discussed above,
Machado and MGA Mexico's Patterns of Racketeering
Machado and MGA Mexico are not alleged to have caused the deprivation of Mattel's interest in the exclusive use and confidentiality of the Bratz trade secret materials.
(b) Loss of Exclusive Use and Confidentiality of Other Trade Secret Materials
Mattel also claims that counter-defendants' patterns of racketeering caused injury to its property interest in the exclusive use and confidentiality of non-Bratz trade secret materials. For the reasons discussed above, Mattel did not suffer concrete financial loss from the deprivation of this property interest: Mattel continued to use the subject materials after their misappropriation, and Mattel can identify no contracts or business relationships implicated by the loss of its exclusive use and confidentiality of the materials.
Nor can Mattel establish that counter-defendants' patterns of racketeering activity caused the alleged injury to its interest in the exclusive use and confidentiality of the non-Bratz trade secret materials. These trade secret materials include: (1) the MyScene Swappin' Styles concept allegedly misappropriated by Brawer; (2) the documents Castilla downloaded to his thumb drive; (3) the Toys 'R Us spreadsheet and optimization tool Cooney downloaded to a personal disc; (4) the documents and information retained by Brisbois; and (5) the documents Machado, Trueba, and Vargas downloaded to thumb drives. Of these former Mattel employees, only Machado is named a counter-defendant to Mattel's first two RICO counter-claims.
No reasonable fact-finder could conclude that the alleged acts of criminal copyright infringement by MGAE, Larian, MGA HK, and Machado were a "but for" or "proximate" cause of the deprivation of Mattel's property interest in the confidentiality and exclusive use of its trade secret materials. Mattel alleges that such acts of infringement encompassed "documents containing Mattel trade secret and confidential information and Bratz works created by Bryant." 4AAC ¶ 124(f). It is undisputed that the acts of reproduction occurred after the misappropriation of the materials and thus, could not have served as either a "but for" or "proximate" cause of the deprivation of Mattel's interest in the confidentiality and exclusive use of the materials. Moreover, there is no evidence that MGA's potential internal reproduction of the non-Bratz trade secret works either implicated Mattel's use of the works or detrimentally affected any specific Mattel contracts, like licensing agreements for the subject works.
Likewise, no reasonable fact-finder could conclude that the alleged acts of obstruction of justice and spoliation committed by counter-defendants were a "but for" or "proximate" cause of the deprivation of Mattel's property interest in the exclusive use and confidentiality of its trade secret materials. Mattel alleges that these acts include: (1) Machado's post-resignation use of a program to "scrub" his personal computer's hard drive; and (2) MGA's failure to produce relevant documents during this litigation. This alleged conduct occurred after the alleged misappropriation of Mattel's trade secret materials. It cannot, therefore, be considered either a "but for" or "proximate" cause for the precipitating injury to Mattel. And there is no evidence of a direct causal relationship between
There is a nevertheless genuine issue of material fact as to whether Machado's alleged use of the interstate wires was a "but for" cause of the potential injury of Mattel's property interest in the confidentiality and exclusive use of the materials misappropriated by Machado, Trueba, and Vargas. Mattel has cited no direct evidence that the materials allegedly downloaded by Machado and his two Mattel Servicios colleagues resided on Mattel's California servers. But a reasonable fact-finder could still conclude that Machado directed his colleagues to contact "both a Mattel employee located in El Segundo, California and Mattel's advertising agency to request updated confidential information about advertising plans." Webster Dec., Ex. 287; 4AAC 48.
However, Mattel has no evidence that MGA's alleged racketeering had anything to do with Machado's access and disclosure of such materials. Mattel identifies the following acts of mail fraud and wire fraud: (1) a shipment of an employment offer letter to Machado, Vargas, and Trueba; (2) emails between MGA and the Mattel Servicios employees discussing their offers for employment; (3) internal MGA emails referring to a strategy of targeting Mattel's employees; (4) fourteen telephone calls between Machado and Kuemmerle/MGAE; (5) dozens of telephone calls between Machado and Trueba and a fellow employee in Mexico; and (6) Trueba's aforementioned emails to Machado forwarding Mattel's internal communications and attachments. Id., Exs. O, R, S, U, W. Of these communications, only Trueba's emails to Machado
The connection between the alleged patterns of racketeering and the conduct of Mattel's other employees is attenuated. None of these former employees used the interstate mails or wires to acquire the trade secret information at issue. The acts of mail and wire fraud that Mattel identifies as the "proximate" and "but for" cause of the deprivation to its interest in the exclusive use and confidentiality of the allegedly misappropriated materials include: (1) an email exchange between Castilla and an MGA executive about the scope of his duties at MGA; (2)
These communications did not proximately cause any injury to Mattel's exclusive use and confidentiality of its trade secret materials. Dozens of intervening factors, including the employee's decision to disclose trade secret materials, break the causal chain between an offer of employment and the misappropriation of a current employer's trade secrets. Similarly, internal MGA discussions about the deficiencies in forecasting and inventory management did not, under any reasonable reading, compel the eventual disclosure of Mattel's information about these topics.
Mattel has simply failed to show how any counter-defendant's pattern of racketeering activity directly caused the alleged injury to any interest in its trade secrets.
(c) Other Injuries
As discussed earlier, Mattel separately claims that "lost profits" caused by Bratz sales and the "lost opportunity" to use Bratz are distinct interests—not just the consequences of the injury to Mattel's interest in the exclusive use and confidentiality of its trade secrets.
Opportunity and Use
Mattel's loss of access to the Bratz works didn't cause concrete financial injury because it wasn't a specific business opportunity Mattel could have been expected to pursue. Compare Diaz, 420 F.3d at 900 ("And his claimed financial loss? He could not fulfill his employment contract . . ."). Regardless, none of the counter-defendants' patterns of racketeering activity was either a "but for" or "proximate" cause of Mattel's lost opportunity for two reasons. First, Mattel's lost opportunity was precipitated by Bryant's disclosure of the Bratz materials to MGA and his non-disclosure of those same materials to Mattel. The predicate acts of racketeering concerning the use of the Bratz works and the concealment of their theft occurred after the disclosure was complete and Mattel had unwittingly surrendered its exclusive opportunity to use the works. Such acts of racketeering cannot serve as the "but for" cause of Mattel's injury because, even absent such acts, Mattel would have lost its opportunity to use the Bratz works. Compare Bridge, 553 U.S. at 658, 128 S.Ct. 2131 (holding that prevailing bidders of a county tax-lien auction proximately caused injury by submitting "false statements of compliance" that induced county to "permit[ ] petitioners to participate in the auction").
Mattel also cannot establish a causal relationship, let alone a direct and non-contingent causal relationship, "between the acts of racketeering, like the acts of concealment or copyright infringement that post-dated Bryant's disclosure, and Mattel's ability to enforce its rights in the Bratz works or exploit those works. The evidence is legion that, prior to MGA turning Bratz into a commercial success, Mattel had little interest in exploiting intellectual property that resembled Bratz. For example, Mattel canned an inchoate doll concept called "Toon Teens" that, according to Mattel, inspired the Bratz works. See MGA MSJ, Ex. 0286 (recommending that Mattel "not pursue development" of the Toon Teens doll line because "many girls did not seem to care for the dolls' proportions, particularly the large size of the head, legs, and feet compared to the body"). Mattel also rejected the name "Brats" for a line of miniature Diva Starz dolls, because a critical member of its product development team "didn't like the idea of what Brat[s] connoted." See Deposition
Mattel's skepticism of the underlying concepts and names for the Bratz dolls precludes a finding of causation between the acts of concealment and Mattel's late attempt to re-capture the intellectual property from Bryant and MGA. More importantly, Mattel's tepid response to Toon Teens, as well as Mattel's subsequent failure to license Toon Teens to other toy manufacturers, precludes a finding that Mattel would have exploited the Bratz works, whether through direct production or licensing. Mattel therefore cannot establish the requisite causal relationship between the alleged acts of racketeering and its claimed "lost opportunity" to promptly re-capture and thereafter exploit the Bratz intellectual property.
As discussed earlier, Mattel's conclusory reference to "lost profits" doesn't support injury to a recognized business or property interest, let alone concrete financial injury. The cases upon which Mattel relies don't treat future profits as property, but instead treat future business relations and contracts as the "business or property" through which future profits can be realized. See, e.g., Diaz, 420 F.3d at 900.
The Court nevertheless considers the possibility that Mattel's retailer-clients pared down their purchases of Mattel's products as a result of Bratz's growing popularity. This argument should be considered in light of the general rule that a competitor's predicate acts of racketeering, not its legitimate conduct, must cause the alleged injury. See Anza, 547 U.S. at 458, 126 S.Ct. 1991. Even assuming the sale of Bratz products was, in itself, an act of racketeering, Mattel still cannot establish direct injury to its future revenues. An internal Mattel report recognized dozens of intervening factors, including "[a]ge compression accelerat[ion] as video game consumption increases," a market-wide lag in overall consumer spending on toys, "[i]nfluence of media/entertainment prompting girls to grow up and move away from Barbie at an earlier age," and "[g]irls spend[ing] less time playing with toys and more time on entertainment as they grow older." Ex. 08677 to MGA MSJ. Indeed, the same report concluded that Bratz sales actually rescued Mattel's products from an even worse decline: "MGA has captured today's older girls' fashion driven aspirations, creating renewed demand for Fashion dolls within this segment." Id. Though mismanagement of the Barbie brand prevented Mattel from seizing a large share of the new market created by Bratz, Mattel's MyScene product nevertheless benefitted from the goodwill generated by the Bratz concept. See Ex. 1805 to MGA MSJ. Mattel, in short, "thrive[d] on competition." Am. Ninth Circuit Op. at 17346.
Mattel seeks to stave off this avalanche of evidence with the argument that Bratz eroded Mattel's share of a growing market, a claim made in its expert's declaration. Mattel accordingly argues that a
One need only look to Mattel's expansive trade secret misappropriation counter-claim to recognize the variety of ordinary competitive factors that affect a product (like Barbie)'s success or failure: forecasting, inventory management, marketing, retailer relationships, brand development, consumer preferences, demographic shifts, etc. These factors completely undermine the directness of the relationship between Bratz sales and the sales of Mattel products. Cf. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 542, 544, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (recognizing that injury allegedly caused by violation of antitrust statute "may have been produced by independent factors" and apportioning loss could result in "additional long and complicated proceedings involving massive evidence and complicated theories"). Allowing Mattel to wait until trial to quantify the lost profits allegedly suffered as a result of Bratz sales does not cure the absence of a direct relationship, because the theory of liability is too expansive for civil RICO. For example, under Mattel's theory, every other toy manufacturer could sue MGA under section 1964(c) claiming lost market share as a result of the sale of Bratz dolls and the other alleged acts of racketeering.
Anza explains how Mattel's interpretation of 1964(c) can embroil free enterprise in muddled, expensive, and endless litigation. In that case, a distributor of steel mill products that fraudulently concealed its failure to charge state sales taxes to cash paying customers was sued by its direct competitor. The plaintiff alleged that defendant's tax evasion enabled it to "reduce its prices without affecting its profit margin," thereby eroding plaintiff's
Mattel responds that "the issue in Anza was the plaintiff's failure to attribute the defendant's ability to lower its prices (the cause of plaintiff's injury) to the defendant's fraudulent conduct, not the failure to attribute the plaintiff's injury to the defendant's lower prices." Mattel Opp'n to MGA MSJ at 95:22-25. To the contrary, one of the pillars for the Anza decision was the fact that "[b]usinesses lose and gain customers for many reasons, and it would require a complex assessment to establish what portion of Ideal's lost sales were the product of National's decreased prices." 547 U.S. at 459, 126 S.Ct. 1991 (emphasis added). Such considerations have "particular resonance when applied to claims brought by economic competitors, which if left unchecked, could blur the line between RICO and the antitrust laws." Id. at 460, 126 S.Ct. 1991.
Mattel is nonetheless correct that another, independent, support for the Supreme Court's decision in Anza was the absence of a direct relationship between the pattern of racketeering and the conduct that allegedly caused the harm. See id. at 458-49, 126 S.Ct. 1991 ("National, however, could have lowered its prices for any number of reasons unconnected to the asserted pattern of fraud."). The same is true here. The success of the Bratz brand resulted, in significant part, from MGA's "hard work[,] creativity, . . . [and] legitimate efforts." Am. Ninth Circuit Op. at 17333. Separating out the impact of MGA's "legitimate efforts" on the success of the Bratz would require the same "intricate" and "uncertain" inquiry that the Supreme Court sought to forestall in the Anza case.
Monetary and Equitable Relief
Mattel also alleges that it had a business or property interest in the judgments, whether potential or actual, realized through the phase 1 proceedings in this case. 4AAC 124. The Ninth Circuit and this Court have since vacated the equitable relief and monetary damages awarded to Mattel following the phase 1 trial. Mattel therefore suffered no concrete financial injury to its business or property as a result of counter-defendants' patterns of racketeering. To the extent Matttel claims that counter-defendants' patterns of racketeering caused injury to its ability to recover future judgments against MGA, its claim fails section 1964(c)'s requirements for concreteness. Lincoln House, Inc. v. Dupre, 903 F.2d 845, 847-48 (1st Cir.1990).
Mattel also cannot establish that any of counter-defendants' patterns of racketeering caused a hypothetical injury to Mattel's ability to recover from MGA. Mattel specifically alleges that counter-defendants' acts of obstruction of justice and spoliation, as well as a fraudulent transfer of MGA's intellectual property interests to a Larian-controlled entity named Omni 808 Investors, LLC, inhibited Mattel's ability to recover the Bratz intellectual property and a monetary judgment from MGA. Mattel's claim is not only contingent on the actual recovery of (some portion of) the Bratz intellectual property and monetary relief, but it requires the Court to prospectively apportion the impact of counter-defendants' racketeering acts upon the trial
3. Conspiracy to Violate Section 1962(c)
Mattel's second counter-claim alleges that Larian, MGAE, Bryant, MGA HK, MGA Mexico, Machado, and two investment vehicles allegedly created by Larian conspired by "furthering, promoting, and facilitating" a criminal enterprise. The Court previously dismissed this counter-claim as to the two Larian investment vehicles.
To prevail on this counter-claim, Mattel must establish that counter-defendants conspired to violate one of RICO's substantive provisions and it suffered injury to business or property by reason of an overt act of racketeering in furtherance of the conspiracy. Beck v. Prupis, 529 U.S. 494, 500, 120 S.Ct. 1608, 146 L.Ed.2d 561 (2000). Mattel may recover from "co-conspirators who might not themselves have violated one of the substantive provisions of § 1962" because a conspirator can be held "vicariously liable for the underlying tort[s]" committed by his co-conspirators. Id. at 500-07, 120 S.Ct. 1608 (quoting Halberstam v. Welch, 705 F.2d 472, 479 (D.C.Cir.1983)).
For the reasons discussed above, however, Mattel cannot establish that it suffered concrete financial injury to business or property. Even if it could, Mattel cannot establish that the injury to any property interest, including its property interest in the Bratz works, shared a direct relationship with any of counter-defendants' acts of racketeering. Any lost profits or lost opportunity that Mattel suffered as a result of the loss of its interest in the exclusive use and confidentiality of the Bratz trade secret materials was also not the proximate result of any of the alleged acts of racketeering; dozens of intervening variables, like market forces, consumer preferences, and MGA's legitimate efforts, fueled the success of the Bratz line.
To prevail on its first counter-claim, Mattel would need to establish that a counter-defendant conducted, or participated in the conduct of, the affairs of an enterprise through a pattern of racketeering that (1) was the "but for" cause and (2) the proximate cause of (3) concrete financial injury to (4) a recognized business or property interest. To prevail on its second counter-claim, Mattel would need to establish that counter-defendants conspired to conduct, or participate in the conduct of, the affairs of an enterprise through a pattern of racketeering activity, and that (1) an act of racketeering in furtherance of the conspiracy was (2) the "but for" cause and (3) the proximate cause of (4) concrete financial injury to (5) a recognized business or property interest. Both counter-claims fail for the reasons discussed above.
Specifically, Mattel cannot establish that the deprivation of its interest in the exclusive use and confidentiality of its trade secret materials corresponded with any concrete financial injury. Mattel also cannot establish that the loss of its employees' loyalty and honest services corresponded with concrete financial injury.
Nor can Mattel establish that any of its alleged injuries, including the lost interest in the confidentiality and exclusive use of the Bratz trade secret materials, was suffered by reason of an act of racketeering. First, Mattel cannot establish that any alleged act of racketeering committed by
Neither the first nor second counter-claims meet section 1964(c)'s requirements. MGA and Machado's motions are therefore granted as to both counter-claims.
B. Section 1964(c) Elements—MGA's Counter-Claim in Reply
MGA's RICO counter-claim in reply is similarly deficient. MGA alleges that Mattel dispatched members of its Market Intelligence group to fraudulently obtain access to MGA's toy fair showrooms, at which MGA advertised forthcoming products to retailers. MGA claims that Mattel conducted or participated in the conduct of an enterprise's affairs through a pattern of racketeering activity that consisted of the following predicate acts: (1) wire fraud; (2) copyright infringement; (3) spoliation; and (4) obstruction of justice. MGA claims it suffered an injury to its interest in the confidentiality and exclusive use of the information misappropriated by Mattel, and also suffered corresponding lost profits. MGA also claims that it was the victim of a wrongfully imposed injunction as a result of Mattel's withholding of evidence about its market intelligence group and other issues prior to the phase 1 trial.
MGA cannot establish concrete financial injury to a business or property interest. First, MGA cannot identify any contracts or retailer relationships affected by Mattel's alleged pattern of racketeering activity. Its claimed injury to its interest in the exclusive use and confidentiality of the materials displayed in its toy fair showrooms is anything but "concrete." Second, for the reasons discussed earlier, claimed "lost profits" are merely a measure of loss that flows from the injury to a business or property interest. Even if MGA's "future profits" can be considered "business or property," MGA cannot establish the concreteness of any injury to such interest.
Nor can MGA establish any connection between the acts of racketeering and its alleged injuries. Mattel's alleged pattern of racketeering did not cause direct injury to MGA's interest in the exclusive use of confidentiality of its trade secret materials. First, Mattel's alleged failure to timely produce evidence about the activities of its market intelligence group post-dated the group's actual misconduct, which is alleged to have occurred between 1992 and August 16, 2010, when MGA filed its counter-claims in reply. No reasonable fact-finder could conclude that Mattel's alleged concealment of evidence was either a "but for" or "proximate" cause of the group's members gaining access to Mattel's toy fair showrooms, obtaining information about MGA's future product lines, and disseminating such information to other Mattel employees. Second, the relationship between MGA's alleged injury and Mattel's acts of criminal copyright infringement are even more attenuated, since the theft of such materials was necessarily complete at the time of their re-publication in presentations to
Mattel's pattern of racketeering also did not cause direct injury to MGA in this litigation. MGA identifies the following acts of litigation misconduct: (1) failing to produce evidence relevant to MGA's statute of limitations defense prior to the phase 1 proceedings; (2) failing to produce evidence concerning the market intelligence group prior to the phase 1 proceedings; and (3) inducing Vargas to commit perjury during his deposition. MGA claims that some of these acts resulted in the prior district court's issuance of a equitable relief that, though vacated on appeal, caused significant damage to MGA's business opportunities. MGA claims that Mattel's abuse of the discovery process "deceive[d] a federal judge into believing that Mattel was good and MGA was evil, thus procuring a wrongful injunction against MGA that deprived MGA of the sales of numerous Bratz products, interfered with MGA's relationships with retailers, interfered with MGA's relationships with licensees, destroyed an estimated one billion dollars [ ] in brand equity, and nearly drove MGA out of business." Counter-Claims in Reply 5.
These unfocused allegations have no support in the factual record and irresponsibly attempt to attribute a district court's decisions about equitable relief to Mattel's non-production of documents. The undisputed evidence establishes that the equitable relief awarded by the district court had nothing to do with the activities of the market intelligence group and was the product of a careful and reasoned, albeit incorrect, application of the law by the district court. MGA's suggestion that the district court disregarded its duty to apply the law and simply acted on the basis of its instinct about whether one party was good and the other evil has no support in the record. And even if the district court made its decisions on the basis of its feelings about the parties, instead of the law, MGA cannot show that the district court would have considered MGA any less "evil" and Mattel any less "good" after reviewing evidence about the market intelligence group's conduct. Bridge, 553 U.S. at 660, 128 S.Ct. 2131 ("[T]he plaintiff will not be able to establish even but-for causation if no one relied on the misrepresentation.").
MGA's counter-claim in reply fails in all respects to satisfy section 1964(c)'s requirements. MGA cannot establish concrete financial injury to a recognized business or property interest. MGA also cannot show that any of Mattel's acts of racketeering was a "but for" and "proximate" cause of any injury. Mattel's motion for summary judgment is therefore granted as to MGA's second counter-claim in reply.
C. Section 1962(c) Elements—Mattel's First Counter-Claim
Since Mattel cannot establish injury to business or property by reason of a violation of section 1962(c) or 1962(d), the Court need not reach the issue of whether Mattel can prove the underlying violations of those sections of the RICO statute. MGA has, however, challenged the adequacy of Mattel's proof on these issues. In an effort to clarify the record in anticipation of an eventual appeal and cross-appeal, the Court turns to MGA's arguments.
The RICO statute makes it illegal for a person associated with or employed by an interstate enterprise to "conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). The statute defines the term enterprise to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." Id., § 1961(4). To prove that a group of individuals associated-in-fact to form an enterprise covered by the RICO statute, a plaintiff must establish that the enterprise formed by the individuals had three attributes: (1) a common purpose; (2) relationships among the members; and (3) continuity. Boyle v. United States, ___ U.S. ___, 129 S.Ct. 2237, 2245-46 n. 2, 173 L.Ed.2d 1265 (2009); see also United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Because an associated-in-fact enterprise can operate with some fluidity and informality, its existence is "oftentimes more readily proven by `what it does, rather than by abstract analysis of its structure.'" United States v. Coonan, 938 F.2d 1553, 1559-60 (2d Cir. 1991) (quoting United States v. Bagaric, 706 F.2d 42, 55 (2d Cir.), cert. denied, 464 U.S. 840, 104 S.Ct. 133, 78 L.Ed.2d 128 (1983)).
Mattel alleges that the counter-defendants to its first counter-claim conducted, or participated in the conduct of, the affairs of an associated-in-fact enterprise composed of MGAE, MGA Mexico, MGA HK, Larian, Machado, and Bryant.
Mattel must also establish that each counter-defendant to its first counter-claim was distinct from the enterprise. See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). MGA argues that MGAE was not distinct from an enterprise composed of itself, its subsidiaries, and its employees. The Court rejected MGA's argument in its Order on the Motions to Dismiss, noting that "Bryant and Machado weren't always employed by MGA."
3. Pattern of Racketeering Activity
To establish liability under section 1962(c), both Mattel and MGA must prove that the other conducted, or participated in the conduct of, the affairs of the alleged enterprises through a pattern of racketeering activity. 18 U.S.C. § 1962(c). The commission of at least two acts of racketeering within a ten year period can constitute a "pattern of racketeering activity." Id., § 1961(5); see also id., § 1961(1) (identifying predicate acts of racketeering). The acts of racketeering must be related and "amount to or pose a threat of continued criminal activity." Turner v. Cook, 362 F.3d 1219, 1229 (9th Cir.2004) (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)). Continuity is established by (1) a series of predicate acts "over a substantial period of time" that "threaten[s] . . . future criminal conduct" or (2) "a form of predicate misconduct that `by its nature projects into the future with a threat of repetition.'" Turner, 362 F.3d at 1229 (quoting Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 366 (9th Cir. 1992)).
MGA argues that no counter-defendant could have engaged in a pattern of racketeering because "the first RICO enterprise lasted for at most 33 days, and the second for at most 78 days." MGA MSJ at 87:18-19. However, Mattel doesn't allege two enterprises; it alleges a single enterprise composed of the counter-defendants to its first counter-claim. 4AAC 123. MGA's argument appears to rest on the faulty premise that MGAE's potential lack of distinctness from the enterprise during the period of time when Bryant and Machado were employed by MGAE affects the cognizability of the enterprise. The Court has already rejected this argument. See Dkt. 8423 at 6:12-16 ("[T]he manner in which the enterprise must be constituted . . . is unrelated to whether the person must be distinct from the enterprise."). Even if MGAE wasn't distinct from the alleged enterprise for some period of time, that doesn't mean that the enterprise didn't exist or that the other counter-defendants to the first counter-claim weren't always distinct from the enterprise.
First, Mattel claims that Machado continued to orchestrate the theft of Mattel's trade secret information even after he started working for MGA Mexico. Machado's colleague, Vargas, testified at deposition that Machado engaged the services of a "messenger" named "Jorge," who Mattel claims "deliver[ed] additional Mattel documents to [Machado] for months after Machado joined MGA Mexico." Mattel Opp'n to Machado MSJ at 9:3-5. However, Mattel has no evidence that Machado used, or caused "Jorge" to use, the interstate mails or wires to execute any scheme to defraud Mattel of these materials. Such conduct cannot consequently serve as a predicate act in a pattern of racketeering by Machado.
Second, Mattel claims that Machado continued to run "wiping software" on his hard drive well after his resignation from Mattel Servicios. However, the "wiping software" to which Mattel refers was merely standard software meant to enhance hardware performance. Outside of Mattel's unsubstantiated speculation, there is no evidence that Machado engaged in acts of spoliation or obstruction of justice after joining MGA Mexico.
Third, Mattel claims that Machado's use of the misappropriated Mattel materials, which allegedly occurred until at least 2008, also constituted mail or wire fraud because the "scheme was both to take and use the property while evading discovery and judicial intervention." Mattel Opp'n to MGA MSJ at 10:24-25. The Court has already held that "[t]he subsequent use of Mattel's trade secret[s] did not execute a scheme to defraud Mattel of its right to maintain the secrecy of its confidential and trade secret information." Dkt. 8423 at 15:9-10. To the extent the scheme also aspired to use such information, it was not a scheme to defraud proscribed by the mail and wire fraud statutes, because Mattel only had a property interest in the exclusive use, not just any use, of its trade secret materials. Id. ("Mattel's ability to `decide how to use' its confidential information. . . can be lost but once.") (citing Carpenter, 484 U.S. at 25-27, 108 S.Ct. 316).
Fourth, Mattel claims that Machado committed acts of criminal copyright infringement for years after joining MGA Mexico. He allegedly infringed not only the Bratz works, but the other trade secret materials he misappropriated. However, Machado merely worked for MGA Mexico and distributed Bratz products; there is no allegation that he participated in MGA's alleged acts of infringement of the Bratz works. Moreover, the other trade secret works allegedly misappropriated by Machado weren't even registered with the Copyright Office, and no reasonable fact-finder could conclude that Machado willfully infringed any copyrights in these items. Cf. Bischoff v. Waldorf, 660 F.Supp.2d 815 (E.D.Mich.2009).
Mattel therefore cannot establish that Machado conducted a pattern of racketeering activity, although it may have been able to establish that MGAE, Larian, MGA HK, and MGA Mexico conducted patterns of racketeering activity.
4. Acts of Racketeering
MGA also argues that no reasonable fact-finder could conclude that it engaged in each of the individual acts of racketeering alleged in the 4AAC. Mattel alleges that MGAE and Larian engaged in acts of mail and wire fraud, criminal copyright infringement, spoliation and obstruction of justice, and commercial bribery. Mattel also alleges that MGA HK and MGA Mexico engaged in acts of mail and wire fraud and criminal copyright infringement.
(a) Mail and Wire Fraud
Mattel alleges that MGAE, Larian, Machado, MGA Mexico, and MGA HK:
4AAC ¶ 124(a)-(b).
Each element of this scheme could have involved the acquisition of property by false or fraudulent pretenses, as the mail and wire fraud statutes require. 18 U.S.C. §§ 1341, 1343. First, an employer has an interest in the honest services of its employees, which may be deprived through the employee's acceptance of a third party's bribes or kickbacks. 18 U.S.C. § 1346; see also Skilling v. United States, ___ U.S. ___, 130 S.Ct. 2896, 2928, 177 L.Ed.2d 619 (2010); United States v. Procter & Gamble Co., 47 F.Supp. 676, 678 (D.Mass.1942). Second, an employer has a property interest in its trade secret information, of which it can be defrauded. Carpenter, 484 U.S. at 25, 108 S.Ct. 316.
MGA argues that it never "devised or intended to devise any scheme to defraud," and cites its repeated admonitions to departing Mattel employees to not "steal any of Mattel's trade secret information or property, or [ ] deny Mattel the benefit of their honest services while employed by Mattel." MGA MSJ at 90:14-22. However, the Court has already found that genuine issues of material fact preclude the entry of summary judgment on the issue of MGA's complicity in the alleged theft of Mattel's trade secret materials.
(b) Violation of the Travel Act
MGA also argues that Mattel cannot establish a violation of the Travel Act, which can be found at 18 U.S.C. § 1952. To establish that MGAE and Larian violated the Travel Act, Mattel would need to prove (1) interstate travel or use of interstate facilities (2) with intent to promote unlawful activity (3) followed by promotion or attempted promotion of the unlawful activity. 18 U.S.C. § 1952. Such unlawful activity includes "extortion, bribery, or arson in violation of the laws of the
MGA attempts to cabin its alleged violation of the Travel Act to the issue of whether it bribed Cabrera, Morales, and Salazar. Though the Court's order on the motions to dismiss noted that "[t]he facts upon which Mattel's Travel Act claim is predicated can be found between paragraphs 85 and 90" of the 4AAC, which concern MGA's payments to Marlow, the Court also declined to dismiss Mattel's allegation that "MGA[E] and Larian  brib[ed] Machado, Vargas, and Trueba in Mexico and Brisbois in Canada." Dkt. 8423 at 13. There are genuine issues of material fact as to whether MGA used money, or more likely the offer of future employment, to induce these employees to misuse their access to Mattel's confidential and trade secret information.
(c) Criminal Copyright Infringement
MGA argues that it couldn't have engaged in willful infringement of Mattel's copyrights in Bryant's creative works, but the Court has already found genuine issues of material fact as to whether (1) the first generation Bratz dolls and two subsequent generation Bratz dolls infringed Bryant's sketches; (2) MGA's production sculpts infringed Bryant's sculpts; and (3) MGA was aware of Mattel's copyrights in the works at the time of infringement.
D. Section 1962(c) Elements—MGA's Counter-Claim in Reply
MGA alleges that Mattel conducted the affairs of an associated-in-fact enterprise composed of "Mattel (including various subsidiaries), its independent contractors including at least Sharon Rahimi and Bain & Company, and lawyers from at least two outside law firms[:] Quinn Emanuel Urquhart & Sullivan LLP and  Basham Ringe Y Correa." MGA Counterclaims-in-Reply 4.
The undisputed evidence establishes that the enterprise alleged by MGA neither shared a common purpose nor operated as a continuing unit. Although the enterprise members were all associated with Mattel, the linkages end there. Each member was retained in connection with a different project: (1) Rahimi worked for Mattel in 2004 and 2005 and gathered information from competitors' booths at toy fairs; (2) Quinn Emanuel was retained by Mattel in 2003 or 2004 to work on this case; (3) Bain & Company was retained to prepare a report about MGA; and (4) Basham Ringe Y Correa was retained to participate in a deposition. Indeed, the very fact that Basham, Bain, and Rahimi were each hired for one-off projects (none of which had anything to do with each other) demonstrates the absence of purpose or unity. No reasonable fact-finder could therefore conclude that Mattel conducted the affairs of an enterprise, because MGA has failed to plead an enterprise to begin with.
Mattel argues that, since the alleged enterprise lacked a common purpose, relationships, and continuity, all that remains of the enterprise is Mattel, which cannot be distinct from itself. This argument conflates the enterprise and distinctness requirements. If there was no enterprise to begin with, then there was no enterprise from which Mattel could be distinct.
3. Predicate Acts
MGA alleges that Mattel engaged in acts of wire fraud, criminal copyright infringement, spoliation, and obstruction of justice.
(a) Wire Fraud
MGA alleges that Mattel "devised a scheme or artifice to defraud MGA... from [sic][its] trade secrets and other confidential information in order to acquire and maintain an unlawful competitive advantage" and used the interstate wires to execute the scheme. MGA Counterclaims-in-Reply ¶ 315(a). For this allegation to survive summary judgment, the evidence must show a genuine issue of material fact as to whether Mattel (1) devised or intended to devise a fraudulent scheme; and (2) used the wires for the purpose of executing that scheme. Miller v. Yokohama Tire Corp., 358 F.3d 616, 621 (9th Cir.2004).
Mattel argues that MGA has no evidence of a wrongful "scheme" because "no element of the scheme necessitated or even incidentally involved use of the wires." Mattel MSJ re MGA Counterclaims in Reply at 46. This argument conflates the existence of a wrongful scheme with the use of the interstate wires. To the extent Mattel argues that it did not use the wires for the purpose of executing the alleged scheme, genuine issues of material fact preclude the entry of summary judgment on this issue. Internal Mattel emails, for instance, disseminated the market intelligence group's research and a reasonable fact-finder could conclude that such communications, especially those sent by members of the market intelligence group, were made with the purpose of executing the alleged scheme.
(b) Criminal Copyright Infringement
MGA alleges that Mattel criminally infringed its copyrights in the materials displayed in its toy fair showrooms by re-publishing such works in internal Mattel memoranda and displaying such materials to Mattel employees. To prevail on its allegation of criminal copyright infringement, MGA must establish "infringement, that the infringement was willful, and that it was engaged in for profit." United States v. Bily, 406 F.Supp. 726, 733 (E.D.Pa.1975). MGA cannot establish any of these elements.
Assuming MGA owned valid copyrights in the misappropriated works, Mattel's analysis of the works in company circulars and at company presentations was fair use. First, Mattel's use of MGA's materials was de minimis and rarely did Mattel re-produce images or elements of MGA's works. Cf. Elvis Presley Enters., Inc. v. Passport Video, 349 F.3d 622, 627 (9th Cir.2003) (noting that "the quantity of the work taken and the quality of the importance of the portion taken" are factors relevant to a determination of fair use). Second, MGA's alleged works contained factual information about MGA's products and "fair use is more likely to be found in factual works than in fictional works." Stewart v. Abend, 495 U.S. 207, 237, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). Third, Mattel's use of MGA's copyrighted works "was not in competition with the copyrighted use" and MGA has made no showing that Mattel's "subsequent use lessen[ed] the value of the copyrighted work." Italian Book Corp. v. Am. Broadcasting Cos., 458 F.Supp. 65, 70 (S.D.N.Y.1978).
(c) Spoliation and Obstruction of Justice
MGA alleges that Mattel engaged in spoliation by redacting evidence produced during discovery, paying a severance package to a former member of its market intelligence group, and disclaiming knowledge about the market intelligence group during depositions in this case. No reasonable fact-finder could conclude that such conduct occurred on the basis of the evidentiary record. For instance, MGA
Mattel cannot establish injury to business or property by reason of a violation of sections 1962(c) and (d). MGA cannot establish injury to business or property by reason of a violation of section 1962(c). Summary judgment is therefore entered on Mattel's first and second counter-claims and MGA's second counter-claim in reply.
Mattel also cannot establish that Machado conducted, or participated in the conduct of, an enterprise's affairs through a pattern of racketeering activity. This is an independent basis on which to grant summary judgment against Mattel on Mattel's first counter-claim against Machado.
MGA cannot establish that Mattel conducted, or participated in the conduct of, an enterprise's affairs through a pattern of racketeering activity. This is an independent basis on which to grant summary judgment against MGA on MGA's second counter-claim in reply.
XII. MGA's Counter-Claim in Reply for Trade Secret Misappropriation
Since at least 1992, Mattel operated a small "market intelligence group" that, inter alia, attended the various international toy fairs held each year, including the Hong Kong Toy Fair, the Nuremberg Toy Fair, the New York Toy Fair, the Pomona Toy Fair, the Tokyo Toy Fair, and the E3 (Electronic Entertainment Expo). Toy manufacturers operate toy showrooms at these toy fairs and invite retailers and sometimes journalists to come view forthcoming product lines. The major toy fairs occur between January and May of each year, so that retailers can place orders and manufacturers can produce toys in anticipation of the year-end holiday shopping season.
Mattel wanted a window into its competitors' upcoming products. It accordingly dispatched members of its market intelligence group to these international toy fairs, and directed these employees to pose as retailers or members of the press in order to gain access into competitors' showrooms. Mattel's gumshoes were directed to claim to belong to "reasonably small" stores and prepare canned responses to questions about "what type of toys you sell," "how many employees" belonged to the made up retailer, "where exactly your store is located" and "how many stores you have." MGA Opp'n to Mattel MSJ re Counterclaims in Reply, Ex. 9640. They were cautioned to "either put down your home phone number or make up a fake number" but not to "put down your Mattel number." Id. To avoid detection, they were directed to make appointments to view competitors' showrooms while at
Using these tactics, Mattel learned about its competitors. For years, members of its market intelligence group returned home from toy fairs with information about competitors' products. A 2002 internal Mattel memorandum reported on two Mattel employees who "walked the MGA showroom" and learned of a "`refresh' released in June/July that includes one new female character, Sasha" in addition to new fashions and products like Bratz Funk N' Glow, Bratz Boyz, Bratz Mobile, Bratz Funky Fashion Makeover, Bratz Secret Safe, Bratz Spa Playset, Micro Bratz, and various fashion accessories. MGA Opp'n to Mattel MSJ re Counterclaims in Reply, Ex. 9643. In 2004, Mattel retained an independent contractor named Sharon Rahimi charged with the assignment of laying bare MGA's future product lines. Rahimi, who had previously worked for Mattel between 1997 and 2000, gained access to MGA's showrooms at the New York Toy Fair in 2003 and 2004 by claiming to be a freelance writer when, in fact, she was working for Mattel. Deposition of Sharon Rahimi, dated September 16, 2010, at 53. Rahimi thereafter prepared reports for Mattel that disclosed competitors', including MGA's, forthcoming products. MGA Opp'n to Mattel MSJ re Counterclaims in Reply, Exs. 9603, 9604, 9605, 9606. The contents of these reports were shared throughout Mattel's corporate hierarchy.
A. Statute of Limitations
Mattel argues that the statute of limitations has run on MGA's counter-claim in reply for trade secret misappropriation. MGA needed to have brought this claim within "three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Cal. Civ.Code § 3426.6.
1. Date of Accrual
The date of accrual depends on whether this counter-claim in reply was compulsory. "[A] compulsory counterclaim relates back to the time of the filing of the plaintiff's complaint," which in this case is Mattel's 4AAC. See Kirkpatrick v. Lenoir County Bd. of Educ., 216 F.3d 380, 388 (4th Cir.2000); see also Employers Ins. of Wausau v. United States, 764 F.2d 1572, 1576 (Fed.Cir.1985). Mattel now argues that the Court's prior conclusion that MGA's counter-claim in reply was compulsory was reached without the benefit of a developed factual record, which, Mattel asserts, reveals the absence of a logical relationship between Mattel's counter-claims and MGA's counter-claim in reply.
The Court predicated its conclusion on the logical relationship between Mattel's allegation that Machado "stole virtually every document a competitor would need to enter the Mexican market" and MGA's allegation that Machado received at least some of the internal Mattel memoranda disseminated by the market intelligence group. The Court also cited Mattel's allegation that Brawer engaged in wide-spread document theft, which bore a logical relationship to MGA's allegation that Brawer (a Mattel executive) received some of the reports prepared by members of Mattel's market intelligence group. Mattel now claims that discovery has revealed that none of the documents and information misappropriated by Brawer or Machado overlap with the memoranda prepared by the market intelligence group.
However, the determination of whether a counter-claim is compulsory is made at the time the pleading is filed, not at the end of discovery or at summary judgment. See Albright v. Gates, 362 F.2d 928, 929 (9th Cir.1966). A rule allowing perpetual reconsideration of whether discovery has revealed the absence of a logical
The Court's prior ruling stands. MGA's counter-claims in reply relate back to the date of Mattel's 4AAC, which itself relates back to Mattel's November 20, 2006 pleading.
2. Date of Discovery
Mattel argues that "[e]ven assuming MGA's trade secret claim relates back to Mattel's November 20, 2006 pleading, it is time barred if it accrued before November 20, 2003." Mattel MSJ re Counterclaims in Reply at 76:5-6. Mattel points to the fact that MGA employee Paula Garcia, who left Mattel for MGA in 2000, claimed to have seen a Mattel employee in an MGA showroom. Larian Depo. (30(b)(6)), dated August 12, 2010, at 4020 (recalling conversation with Garcia in which she recounted seeing Mattel employee at a prior toy fair showroom). Not only is Larian's testimony about Garcia's statement inadmissible hearsay, but it has little relevance to the timing of Garcia's knowledge. Mattel has no evidence that Garcia knew about the conduct of Mattel's market intelligence group's infiltration of MGA's showrooms at the time she joined MGA. Indeed, there is no evidence in the record that MGA even operated showrooms at the major toy fairs before the 2001 release of the Bratz line of dolls.
B. Economic Value
Mattel argues that information MGA disclosed to retailers and some journalists at its toy showrooms did not derive "independent economic value ... from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use." See Cal. Civ.Code § 3426.1(d)(1). Mattel contends that the product information shared at MGA's toy fairs actually obtained value "from being known to the public" since "the very purpose of toy fairs ... is to `publicize and sell product.'" Mattel MSJ re Counterclaims in Reply at 30-31.
However, as explained above, information about forthcoming products can have value prior to the release of such products is valuable because the manufacturer can profit from the primacy of its product. The mere fact that journalists and retailers received advance notification of forthcoming products, in order to ensure a seamless rollout, doesn't diminish the value MGA may have obtained from keeping the fact of the products' release secret in order to prevent competitors from mimicking MGA's ideas or tailoring their product lines to interfere with MGA's relationships with retailers.
C. Efforts to Maintain Secrecy
Mattel also argues that MGA did not take reasonable efforts to maintain the secrecy of the information shared at its toy fair showrooms. There is, however, a genuine issue of material fact as to this issue. On the one hand, MGA occasionally allowed the press to access its toy showrooms in order to view select products, even without imposing a non-disclosure obligation. Information about MGA's products was also occasionally displayed at "planogram" rooms operated by retailers in advance of the shopping season. However, the very Mattel employees that gained access to MGA's showrooms acknowledged that their surreptitious and deceptive conduct was necessary to gather information about MGA's forthcoming products. And MGA has produced evidence that it took special precautions to prevent the disclosure of product information displayed in its retailers planogram
Mattel also argues that information about MGA's forthcoming products was readily ascertainable, noting that MGA occasionally made statements to the press about its products even prior to the toy fairs at which those products were previewed to retailers and journalists. However, the press releases cited by Mattel certainly don't reveal the depth of information available to retailers at toy fairs, including pricing, marketing techniques, and product development information. A reasonable fact-finder could certainly conclude that the tremendous investment that Mattel made in the development of its market intelligence group belies the suggestion that Mattel could have simply examined MGA's press releases for the information disseminated at toy fairs about MGA's forthcoming products.
Mattel argues that MGA cannot prove harm resulting from Mattel's alleged misappropriation of information about at least 111 MGA products. The California UTSA provides that a plaintiff may recover both "damages for the actual loss" and "the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss." Cal. Civ.Code § 3426.3. Mattel argues that MGA's expert has failed to substantiate any specific loss caused by the alleged misappropriation of information about 111 of the 114 products about which Mattel's employees allegedly fraudulently procured information. MGA's expert witness instead provides a global calculation of the harm caused by all acts of misappropriation and then purports to provide exemplar calculations of the loss suffered as a result of the misappropriation of information about 3 of the 114 products. In such circumstances, the proper course of action is to wait and see whether "the jury conclude[s] that [Mattel] did not misappropriate all of [MGA's] trade secrets" and, if it does, the Court may examine whether "[MGA's] expert testimony regarding damages for misappropriation of all trade secret[s] was useless to the jury." O2 Micro Int'l Ltd. v. Monolithic Power Sys., 399 F.Supp.2d 1064, 1077 (N.D.Cal.2005). This is an issue ill-fit for resolution at this stage.
Mattel's motion for summary judgment as to MGA's first counter-claim in reply is denied.
XIII. Declaratory Relief
In light of the genuine issues of material fact identified above, MGA's motion is denied as to Mattel's counter-claim for declaratory relief.
XIV. Evidentiary Objections
Evidentiary objections are overruled to the extent they concern evidence cited herein, and are otherwise stricken as moot. MGA's Request for Judicial Notice is denied as moot.
For the foregoing reasons, the Court ORDERS as follows:
IT IS SO ORDERED.
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