Mattel V. MGA Entertainment, ___ F.3D ___ , No
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CIRCUIT NOTES: NINTH CIRCUIT April 2, 2013 Mattel v. MGA Entertainment, ___ F.3d ___ , No. 11-56357, 2013 WL 264645 (9th Cir. Jan. 24, 2013) The Ninth Circuit ruled both for and against defendant/appellee MGA Entertainment, Inc. in a post-jury verdict appeal of Mattel’s copyright infringement and trade-secret misappropriation case regarding MGA’s line of Bratz dolls. For MGA, the Ninth Circuit upheld the district court’s award of attorney fees and costs under the Copyright Act. Against MGA, the Ninth Circuit dismissed MGA’s misappropriation of trade secrets counterclaim as not compulsory and therefore untimely. With respect to the fee award, Mattel argued MGA was not entitled to recover its fees because Mattel’s copyright claims were “objectively reasonable.” In other words, because Mattel brought legitimate copyright-infringement claims, MGA should not have recovered fees and costs under the Copyright Act for its successful defense. MGA argued in response that the district court properly exercised its discretion in granting a fee award that would advance faithfulness to the purpose of the Copyright Act, namely, to stimulate artistic creativity for the general public good. By advancing a variety of meritorious copyright defenses to Mattel’s claims, MGA furthered the purpose of the Copyright Act. The Ninth Circuit sided with MGA and the district court, holding: the “ultimate aim of [of the Copyright Act] … is to stimulate artistic creativity for the general public good” and that “aim is furthered when defendants advance a variety of meritorious copyright defenses.” Opinion available at http://cdn.ca9.uscourts.gov/datastore/opinions/2013/01/24/11-56357.pdf, p. 7 (internal citations omitted) (“Opinion”). The Ninth Circuit recognized that if MGA had not vigorously defended itself, such idleness could have “ushered in a new era of copyright litigation aimed not at promoting expression but at stifling the competition upon which America thrives.” Opinion, p. 7. With respect to MGA’s counterclaim, Mattel argued the claim was time-barred and could not be saved as a compulsory counterclaim to Mattel’s trade-secret-misappropriation claim because MGA’s claim did not arise from the same set of essential facts as those alleged by Mattel. Mattel’s misappropriation claim was based on former Mattel employees stealing, and then giving to MGA (their new employer), Mattel’s trade secrets acquired while working for Mattel. In contrast, MGA’s claim centered on allegations that Mattel employees disguised their true identities as MGA competitors at toy fairs to steal MGA’s trade secrets during a different time period. MGA argued its claim was not time-barred because it was compulsory: the misappropriation claim was “logically related” to the transaction or occurrence that formed the basis of Mattel’s claim. Because Mattel’s claims encompassed hundreds of economic and legal interactions between the parties over the last decade, it was reasonable for the district court to conclude that at least some of the facts overlapped. This time, the Ninth Circuit sided with Mattel. MGA’s counterclaim-in-reply was only proper if it was compulsory, meaning it “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim.” Fed. R. Civ. P. 13(a)(1)(A). Even though Mattel alleged MGA had misappropriated Mattel’s trade secrets, that was not enough for MGA to hang its hat on. MGA’s trade-secret-misappropriation claim was based on a separate set of facts and circumstances than Mattel’s; the only significant similarity was the title of the cause of action. But, as the Ninth Circuit explained, “What matters is not the legal theory but the facts.” Opinion, p. 6 (emphasis in original). Going forward, companies seeking to protect their valuable intellectual-property rights will have to weigh the merits of their claims and the importance of vigorously defending their rights through litigation with the potential for facing large fee and cost awards. Indeed, large corporate copyright holders could face enhanced scrutiny when bringing infringement claims—even legitimate ones—as they could be seen as trying to stifle competition rather than promoting creativity. At the same time, the Ninth Circuit’s ruling on counterclaims imposes a renewed sense of diligence on parties seeking to protect their intellectual-property rights. A party cannot sit on its rights in the hopes they will later relate to another claim. As the Ninth Circuit has shown, some overlap in facts is not enough to save a counterclaim from the statute of limitations. —Jennifer L. Wagman, Jenner & Block LLP, Los Angeles, CA .