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Bratz battle escalates, Mattel accused of spying

Mattel Inc. was accused by rival MGA Entertainment Inc. of spying on rival toy companies for at least 15 years and defrauding it out of secret details on more than 50 products, in an escalation of the battle over the popular Bratz dolls.

In a filing in Los Angeles federal court late Monday, MGA said Mattel workers, with the approval of executives, infiltrated rivals' private showrooms to steal product ideas, price lists and advertising strategies.

MGA said the maker of Barbie and Ken dolls went so far as to print up fake business cards at Kinko's to help gain entry and obtain this "holy grail" of information about rivals.

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Reports generated from these forays were widely distributed within the company and reviewed by chief executive officer Bob Eckert, the filing said.

Mattel allegedly gained access to the showrooms of other toy makers, including Hasbro Inc., Lego AS and Sony Corp., the complaint said.

Mattel did this "to maintain its unlawful competitive advantage in the toy industry, its vigorously promoted reputation as an ethical company, and most importantly of all from MGA's perspective, its ability to deceive a federal judge into believing that Mattel was good and MGA was evil," MGA said.

MGA CEO Isaac Larian declined to comment on the filing. Mattel spokeswoman Lisa Marie Bongiovanni said the company looked forward to defeating MGA's allegations in court.

"These eleventh hour claims are without merit. They are a cynical attempt to deflect attention from MGA's own wrongdoing," Ms. Bongiovanni said.

MGA made the filing four weeks after the U.S. Ninth Circuit Court of Appeals in San Francisco said a lower court judge had wrongly granted Mattel ownership of the $1-billion (U.S.) Bratz franchise. This cleared the way for a possible Jan. 11 trial over who can sell the pouty-lipped, multi-ethnic dolls.

According to MGA's latest filing, Mattel employees from its so-called "market intelligence" group made regular trips to toy fairs across the globe and gained entry with false credentials. They signed nondisclosure agreements which they had no intention of honouring, MGA alleges.

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The Mattel employees used spy cameras paid for by the company, the filing said, and information on the competition was presented to hundreds of Mattel employees in an auditorium at its corporate headquarters.

"The methods of Mattel's spies were well known throughout the company, including by its top executives," the filing said. "The market intelligence group openly discussed its tactics."

MGA's allegations are largely based on deposition testimony from a former Mattel employee who said he left the company after having second thoughts about the practices. That employee, Sal Villasenor, could not immediately be reached.

The market intelligence group's expenses were supervised by two executives who reported to Matt Bousquette, former president of Mattel Brands.

"Bousquette was friendly with Villasenor and knew what he was doing to get information," the filing states. Mr. Bousquette is now chairman of Enesco LLC, and was not immediately available for comment.

However, to prove trade secret theft, the targeted company must first demonstrate that the stolen information really was proprietary, said Nixon Peabody intellectual property litigator R. Mark Halligan.

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Without proof, the methods used to gain that data wouldn't necessarily matter, Mr. Halligan said. Breaking into a lab in the middle of the night to steal data would be a criminal violation, but lots of other activities fall into a grey area, Mr. Halligan said.

Competitors often research each other at trade shows, he said, and don't fully disclose for whom they work. "The standards have not been clear," Mr. Halligan said.

In August, 2008, a federal jury in Riverside, Calif., had ordered MGA and Mr. Larian to pay Mattel $100-million, concluding that Barbie designer Carter Bryant was under contract to Mattel when he sold MGA some drawings upon which Bratz was based. Trial judge Stephen Larson, who has since left the bench, then ordered MGA to transfer the Bratz portfolio to Mattel.

Writing on July 22 for the Ninth Circuit, Chief Judge Alex Kozinski said it was unfair to transfer Bratz, whose value was "overwhelmingly" created by MGA, and that in any new trial the district court should address whether Mattel owned Bryant's ideas under his contract.

"America thrives on competition; Barbie, the all-American girl, will too," he wrote.

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