1. BARBIE V. BRATZ (MATTEL INC. V. MGA ENTERTAINMENT INC.) Prepared for Innovators Network by: Nikolai & Mersereau, P.A. 900 Second Avenue South, Suite 820 Minneapolis, MN 55402 (612) 339-7461 www.nm-iplaw.com Nikolai & Mersereau, P.A. 2008

2. ABOUT THE PRESENTERS

Nikolai & Mersereau, P.A.is a full service IP firm located in Minneapolis, Minnesota.The firm represents individuals and businesses of all sizes in divergent technical areas.

Jim Nikolaihas practiced intellectual property law since 1982 focusing on IP litigation, licensing, product and trademark clearance, and helping clients develop and implement comprehensive IP strategies.Jims leadership and experience in the area of patent litigation was recognized by the judges of the U.S. District Court for the District of Minnesota when they appointed him to serve on the Courts Patent Advisory Committee which recommended new procedural rules used by the Court in patent cases.

Phone:(612)392-7302Email:[email_address]

After serving in the U.S. Navy aboard two fast attack nuclear submarines,Jim Paigeearned an electrical engineering degree from Iowa State University and his law degree from Drake University, graduating with honors from both institutions.Since 2001, Jim has worked extensively on the protection of medical device, signal processing, communication and digital microelectronic technologies.Jim was recognized as a Rising Star in the field of IP law byMinnesota Law & Politicsmagazine in 2005.

Phone:(612)392-7310Email:J [email_address]

3. UNDISPUTED FACTS

Ruth Handler created Barbie in 1959 and co-founded Mattel, Inc.

Thanks to Barbie, Mattel is now the largest toy company in the world

Carter Bryant worked for Mattel

Bryant left Mattels employment

Bryant joined MGA Entertainment

Bryant developed the Bratz concept

MGA introduced the Bratz line in 2001

4. WHY THE FIGHT?

Mattel had $5.9 billion in sales last year--Mattel, Inc. 10K Report

Barbie comprises 21% of Mattels sales--Bloomberg.com, May 13, 2008

Barbie sales are dropping-- Los Angeles Times , May 27, 2008

Bratz is the most serious competitive threat that Barbie has faced in its almost 50-year life--Sean McGowan

Bryant paid $30 million in royalties-- Minneapolis Star Tribune , June 6, 2008

5. LEGAL CONTENTIONS

Mattel v. Bryant

• Bryant assisted MGA in violation of his contractual and other duties to Mattel

Bryant v. Mattel

• Mattels Confidential and Proprietary Inventions Agreements are invalid

• Bryants conveyance of the rights in Bratz to MGA was proper and did not misappropriate Mattels rights

6. LEGAL CONTENTIONS(CONTINUED)

Mattel v. MGA

• Copyright infringement

• RICO violations

• Trade secret misappropriation

• Intentional interference with a contract

• Aiding and abetting

• • breach of fiduciary duties

• • breach of duty of loyalty

• Unfair competition

7. LEGAL CONTENTIONS(CONTINUED)

MGA v. Mattel

• Trade dress infringement

• Trade dress dilution

• False designation of origin

• Unfair competition

• Unjust enrichment

8. WHAT INTELLECTUAL PROPERTY LEGAL CONTENTIONS HAVENOTBEEN MADE?

Patent infringement

9. MATTEL

When relying on employee ideas to further business

• Implement idea or invention disclosure notebooks

• • Require the notebooks be secured or turned in regularly

• • Require all ideas to be within the notebook

• • Require the notebook to be turned in upon termination of employee (perhaps confiscate before termination)

• Implement an employee agreement

• • Agreement clearly lays out all IP developed during employment related to employment is Mattels property

• • Further, all IP related to employment after the employee leaves could also potentially be Mattels

10. MATTEL

Prevent idea theft by competitors

• Develop a non-compete agreement for all employees

• • Make sure agreement is reasonable in time (less than 3 years), scope (employees job at Mattel), and geography (local v. national company)

• Develop a non-disclosure agreement for all employees

• Develop trade secret protection protocol

• • Limit employees who have access to trade secrets

• • Ensure trade secrets are kept in a protected place

Protect copyrights

• Mark materials with copyright notice

• Insist on work for hire agreements with consultants

• Implement and enforce registration guidelines

Protect trademarks, trade names, trade dress and service marks

• Clearances for proposed marks

• Applications for registration

11. MATTEL

Patenting

• Develop an internal patenting process

• • Reward system for employees obtaining patents for the company

• • Managerial review of patent submissions to weed out patent submissions of no value to company

• • Develop patent board to determine what patents get filed

• • • Create Standards (e.g.)

• • • • 75% of high value submissions get filed

• • • • 50% of medium value submissions get filed

• • • • 25% of low value submissions get filed (this helps prevent the wild card idea from getting away)

• • Consider types of patents available (apparatus, method, process, design, plant, etc.)

• • Match foreign filing strategy to important markets or potentially important future markets

12. BRYANT & MGA

When hiring a competitors employee

• Check non-compete agreements

• Check non-disclosure obligations

• • Statutory

• • Contractual

• Check employees invention assignment obligations

• Check prior employers rights to employees work product

• Check to make sure the employee has leftalldocumentsof the prior employer behind

• Restrict the employee to duties negating inevitable disclosure of prior employers trade secrets

• Document ground rules for employee to follow:

• • No recruiting

• • No use of prior employers IP

• • Keep clear and thorough documentation of work to show where and how it was performed

13. BRYANT & MGA

When introducing a product

• Is there interfering IP

• • Patents

• • Copyrights

• • Trademarks

• How can IP of others be avoided

• Licenses

• • Is there IP that needs to be licensed

• • From whom

• Is IP protection strategy in place

14. BRYANT & MGA

IP protection strategy

• What IP is potentially available

• • Patent

• • Trademark/service mark/trade dress

• • Copyright

• • Trade secrets

• Where should protection be sought

• What are the deadlines

• Who will manage the effort

15. REMEDIES

Patent

• Injunction

• Lost profits/reasonable royalty

• Triple damages

• Costs and attorney fees

Copyright

• Injunction

• Owners damages and profits of the infringer

• Statutory damages

• Costs and attorney fees

• Criminal sanctionsimprisonment and fines

Trademark

• Injunction

• Owners damages and profits of the infringer

• Triple damages

• Costs and attorney fees

Trade secret

• Injunction

• Damages/unjust enrichment/reasonable royalty

• Double damages

• Costs and attorney fees

• Criminal sanctions10 years in prison, $5 million in fines

16. INTELLECTUAL PROPERTY

It is all about risk and return

• Reducing risk that others will be able to keep you from not receiving full return on investment

• Increasing risk to others who might try to reap profits from your development efforts

Mattel and MGA each have tied their future to their intellectual property rights

17. WHO WON?

Liability Verdict (July 17, 2008)

• MGA found liable on 15 of 15 counts

Damages Verdict (August 26, 2008)

MGA Larian MGA Hong Kong Intentional Interference with Contractual Relations $20,000,000 $10,000,000 Aiding and Abetting Breach of Fiduciary Duty $20,000,000 $10,000,000 Aiding and Abetting Breach of Duty of Loyalty $20,000,000 $10,000,000 Conversion $31,500 Copyright Infringement $6,000,000 $3,000,000 $1,000,000 TOTAL $ 66,031,500 $ 33,000,000 $ 1,000,000