If you've been reading Techdirt for more than five years, you probably remember the conclusion of Mattel v. MGA — and if you've been reading for more than thirteen years, you might even remember when it started. This epic legal battle over intellectual property went through nearly a decade of rulings and reversals, and the resulting story is a fascinating one that ties in a lot of the topics we discuss here at Techdirt. It's also the subject of the new book You Don't Own Me by law professor Orly Lobel, who joins us on this week's episode to revisit this particular law opera and what it says about the wider world of IP.
Earlier this year, we noted that Barbie had received a face lift for the internet of things age. Hello Barbie is able to take commands from your kids, but also connects to your home Wi-Fi network to shovel your children's conversations to the cloud -- purportedly to improve Barbie's voice recognition technology. At the time, groups like the Campaign for a Commercial Free Childhood complained that monetizing the ramblings of toddlers was a line that shouldn't be crossed, given that kids would no longer be talking to a doll, they'd be "talking directly to a toy conglomerate whose only interest in them is financial."
But beyond the ethical implications of marketing to kids is the more pressing lack of security and privacy standards apparent in most IOT devices. As hacked automobiles, tea kettles and refrigerators all perfectly illustrate, companies are so eager to cash in on the connected age that they "forget" about securing the end user. And now, as the Vtech hack recently illuminated, your kids' toys are no exception. Neither is Hello (I'm an NSA operative) Barbie.
A security researcher last week found it rather trivial to modify the doll to "access system information, Wi-Fi network names, its internal mac address, and account IDs," noting it would be easy to change what's collected and even where that data is stored. Granted, in Skynet Barbie's case, this requires physically obtaining the doll and torturing it. But the physical security of Barbie is only half the equation. Data's also obviously stored in the cloud, and Barbie's shiny new privacy policy warns kids this data can all be subpoenaed (so be good for goodness' sake):
"There are all sorts of issues about where that info is going, who’s listening and what it’s being used for and how it might come back to haunt you,” said Lori Andrews, Professor IIT Kent College of Law.
Andrews describes the doll as a miniature surveillance device that can also record whatever else is going on in the room. The lengthy Barbie privacy statement discloses the company will report “a conversation that raises concern about the safety of a child or others”.
“The company has said it’s going to take on the role of alerting the authorities,” said Andrews. “And in their privacy statement they also say they’re going to respond to legal subpoenas."
Here you were thinking you were just buying your child a Barbie. Little did you know you were providing an internal mole for use in future custody hearings. And again, like the Vtech hack reiterates, physical security of the toy itself is only a small part of the equation. Companies are so damn enamored with the lure of the Internet-of-whatsa-doodles, they tend to not only forget to secure the device, the transmission, and the storage, but they very often hungrily collect way more data than is actually necessary. The end result is a modern household full of toys, appliances and devices guarded by what's at best paper-mache grade security standards.
Samsung recently took a significant media beating after people actually bothered to read the company's privacy policy, only to discover that the company's "smart" TVs were collecting snippets of living room conversation and transmitting them to third parties for analysis. Samsung ultimately issued a blog post stating it was only collecting a limited amount of voice data to improve voice command functionality. Besides, said Samsung, if you don't want your voice commands collected, you can disable the functionality (even though you lose some core TV features in the process).
Of course, while Samsung got the brunt of the public and media hysteria, many people didn't seem to realize that nearly everything that takes voice commands (from your home automation system to your iPhone) already engages in this same behavior. Case in point: Mattel is taking more than a little heat for the company's new "Hello Barbie," which connects to Wi-Fi, and also records kids' voice commands and routes them to an external server in order to improve voice command tech. In this video from February, Mattel shows how Barbie now stores your preferences and even provides career advice:
"Imagine your children playing with a Wi-Fi-connected doll that records their conversations--and then transmits them to a corporation which analyzes every word to learn "all of [the child's] likes and dislikes." That’s exactly what Mattel’s eavesdropping “Hello Barbie” will do if it is released this fall, as planned. But we can stop it!
Kids using "Hello Barbie"' won't only be talking to a doll, they'll be talking directly to a toy conglomerate whose only interest in them is financial. It's creepy—and creates a host of dangers for children and families. Children naturally reveal a lot about themselves when they play. In Mattel’s demo, Barbie asks many questions that encourage kids to share information about their interests, their families, and more—information advertisers can use to market unfairly to children."
While the CFCC works to keep the toy from store shelves, Mattel is promising that security and privacy has been their top priority while crafting a doll that learns what kids like:
"Mattel and ToyTalk, the San Francisco-based start-up that created the technology used in the doll, say the privacy and security of the technology have been their top priority. "Mattel is committed to safety and security, and Hello Barbie conforms to applicable government standards," Mattel said in a statement."
The problem is, we've seen repeatedly how the companies rushing face-first toward the billions in potential revenues from the "Internet of Things" market are so fixated on profit, that security and privacy have been afterthoughts -- if a thought at all. It doesn't matter if we're talking about Smart TVs with trivial to non-existent security or easily hacked smart car tech, companies are showing again and again that privacy and security really aren't paramount. That's before we even discuss how this collected voice data creates a wonderful new target for nosy governments courtesy of the Third Party Doctrine.
So while some of this hysteria over what's being collected probably veers into hyperbole territory, the cardboard-grade security and privacy standards most companies are adopting certainly create cause for concern. The good news I suppose: the "smarter" our products get, the bigger the market is for "dumb" products that just sit there and do what they're supposed to do, whether that's a television that just displays the damn signal sent to it or utterly insentient dolls that just shut up, smile and drink their fake tea.
One of the more epic IP battles has come to an end. Mattel (Barbie) and MGA Entertainment (Bratz), have spent most of a decade in various courtrooms hashing out the ultra-serious question about which of these companies is entitled to the Bratz millions.
Long story short, a former Mattel employee left the company and crafted one of the first serious threats to Barbie's dominance, the Bratz dolls. Mattel, of course, was none too happy because the designer was still employed by Mattel when he came up with the idea. Mattel felt it owned the idea and sued the designer in an effort to make that a reality. From that point on it went from bad to worse to farcical. At one point, the court ordered MGA to turn over all future plans for the Bratz line... which was then reversed... which was reversed by a lower court... which was re-reversed by the original court. This led to counterclaims flying from both directions and the last we had heard, Mattel, which had originally filed the suit, was being hit with a judgment for $309 million in damages, including MGA's court fees. Adding that together with Mattel's legal expenses, and this fight over dolls put Mattel on the hook for nearly $700 million.
But MGA gets the last laugh. The Ninth Circuit left untouched $137 million in attorney fees and costs awarded to MGA for defending against Mattel's copyright claims.
Yes, the old truism (that I made up right now) "The only true winner in our legal system is MGA's lawyers" is proven once again in this case specifically. MGA won't be collecting any damages but at least its legal team lives on to fight another day -- possibly tomorrow, from the sound of its sore winner statement:
CEO Isaac Larian promised to retry the company's trade secret claims to a new jury. "We are confident that when the second jury hears about Mattel's sneaking into our showrooms and egregious theft of scores of our secrets over the years, they will be even more appalled than the first jury and award MGA even greater damages," he said in the statement.
Mattel has fired back with about the only silver lining retort available after spending nearly 8 years in court: the statute of limitations. The court basically agrees with Mattel's half-defiant, half-white flag statement, ruling that MGA's counterclaim (the one that had originally awarded it $170 million in damages) was time-barred and by no means "compulsory."
This hasn't stopped MGA from proudly declaring this "windfall" (which will all be going right back in its lawyers' pockets) to be the "largest fee and cost award in a copyright infringement case in US history." True, it's better than coming out of the battle stuck with the legal bill, but this misplaced joie de vivre makes it seem as though MGA will be presenting the award to Skadden, Arps, Slate, Meagher & Flom in the form of an oversized novelty check in front of gathered members of the sympathetic press and assorted minor local politicians.
As Stephan Kinsella notes, "live by IP, die by IP." You may recall the infamous legal fight over who owns the Bratz dolls. I won't go through the full history, but basically Mattel claimed that it owned the rights to Bratz dolls, because the creator of those dolls worked at Mattel (though not in a doll designing job) at the time he developed the dolls (not during work time). That guy eventually went to competitor MGA who produced the Bratz line of dolls. Mattel racked up an early series of wins in the case. Those wins seemed far overreaching. Not only did they give Mattel the rights to the original Bratz dolls, but all future plans as well, despite none of that having anything to do with Mattel.
Thankfully, sanity was regained at the appelate level, and eventually things turned around to bite Mattel for bringing the lawsuit in the first place. That's because the lawsuit allowed MGA to countersue over trade secrets violations. In April, we noted that this might end up costing Mattel $88.5 million, as the court rejected all of Mattel's claims and sided with MGA on the trade secret claim.
Turns out the result was even more damaging for Mattel. The court didn't just stick with the $88.5 million award the jury gave. Instead, while he "reduced" the jury award to $85 million, he then tacked on another $85 million in punitive damages and told Mattel to pay $137 million in legal fees to MGA. Total bill? Mattel has to fork over $309.8 million. All for a lawsuit Mattel brought in the first place. And that doesn't count the estimated $400 million that Mattel spent in legal fees during this fight. Add it all up and Mattel's decision to sue appears to have cost the company upwards of $700 million dollars.
Wow. For years, we've been following the legal battle between toy giant Mattel and toy upstart MGA concerning the ownership of Bratz dolls -- the first dolls in years to seriously compete with Mattel's classic Barbie doll. If you haven't been following it, a guy who worked for Mattel came up with the idea for the Bratz dolls. At Mattel he was not involved in designing dolls, and he claims that he did all the work in his spare time, not on company time. He then left and went to MGA, which agreed to make the Bratz dolls, which quickly became a huge success story. Mattel claimed that, under the guy's contractual agreement with Mattel, anything he invented belonged to them. The original district court ruling sided with Mattel and the judge (amazingly) ordered that Mattel should get all Bratz dolls including future plans for dolls. That made absolutely no sense to us. At best, if the determination was that the original designs were Mattel's, the company should get access to the original designs, and maybe some early dolls. But everything after that had nothing, whatsoever, to do with Mattel.
Thankfully, Judge Kozinski on the 9th Circuit came to the rescue and wrote a fantastic ruling explaining all of this to the district court, and sending the case back for a new trial. As part of that, MGA also filed some counterclaims against Mattel, including the claim that Mattel illegally spied on MGA and copied trade secrets from the company through questionable means. When these counterclaims were filed, I actually suggested that it was silly and distracting from the larger point... which I still stand by.
To summarize: in the course of a few short years, Mattel went from losing in the marketplace to MGA, to winning a court case that gave it total control over the competing product... to now not having control and having to pay MGA potentially millions.
Of course, this isn't over yet. Mattel has already asked the court for a brand new trial, and if that doesn't work, it says it's going to appeal the case, even if some "industry analysts" are apparently telling Mattel the company should just drop it. I have a feeling we haven't yet seen the end of this case, however.
We were somewhat horrified by a ruling a little over two years ago that said that because a guy employed by Mattel had created the idea for the "Bratz" doll line while employed at Mattel (but not in a doll-creating capacity), it meant that Mattel could own all of Bratz. The guy eventually took his idea to competitor MGA Entertainment, who developed and built up the Bratz line, which became the first serious challenger to Barbie's dominance in the doll world. What really troubled us was the fact that the court ruled not just that Mattel owned the rights to the original Bratz doll idea, but that it owned everything having to do with Bratz, even plans for future dolls. While the guy worked at Mattel, all he created was a prototype, not everything that came after that. Thankfully, Judge Kozinski slapped down the lower court in much of this thinking, explaining (once again) that copyright only covers the expression, not the idea.
Judge Kozinski sent the case back to the district court, noting that it probably would mean that the entire case would need to be retried. In the first step concerning that new trial, the district court judge has ruled that Mattel cannot seek damages on later versions of the dolls, limiting that part of the case to just two original dolls. The judge noted:
"Not only do the vast majority of the subsequent generations of Bratz dolls differ in their hairstyles and fashions but they lack any meaningful similarities outside of ideas."
Of course, the district court could have saved a lot of time and effort if it had just made this basic point the first time around. There will still be a trial about the initial doll designs, as well as a trade secrets claim, but, unlike the original trial, it seems that Mattel won't end up with all of the Bratz line.
That said, the original ruling apparently did tons of damage already to MGA and Bratz. As the article notes, MGA seriously cut back on Bratz after the original ruling (why build toys that a competitor gets to own?) and many retailers stopped carrying the line as it wasn't clear what was going to happen. So even if Mattel loses the eventual lawsuit, it seems that it may have won in the long run by seriously curtailing a strong competitor that had tremendous momentum. Just like copyright law intended...
It looks like toymaker MGA has decided that if the momentum is turning in its ongoing legal fight with competitor Mattel, it might as well go all in. As you may recall, Mattel had sued MGA over its (extraordinarily successful) Bratz lines of dolls, because the designer who came up with the concept had done so while working at Mattel. This resulted in an amazingly broad ruling against MGA that required it to basically turn over everything having to do with Bratz dolls, including future plans, to Mattel. This made no sense. If Mattel was to get the rights to anything from MGA, it should have only been the original expression if they were actually produced under the Mattel employment contract (a point of dispute). Thankfully, the appeals court realized what a terrible ruling this was, and rejected most of it.
With momentum moving to MGA, the company has now filed headline-grabbing counterclaims against Mattel, concerning revelations, supposedly unearthed during depositions for the case, of widespread and potentially illegal corporate espionage done by Mattel on MGA and many other toy companies, including setting up fake personas so that people working for Mattel could get into toy showcases from competitors that were closely guarded secrets.
While it does make for a good story, it's not entirely clear what this really has to do with the case at hand. Corporate espionage happens all the time, as competitors try to get a leg up on one another. It seems like a bit of a tangent for MGA to even bother to bring this up now. Why not just focus on the key issue of retaining the rights to the lucrative Bratz dolls?
We've been following a lawsuit over Bratz dolls for a few years now. It involved a guy who worked at Mattel (not in a position designing dolls). While there, he had an idea for a new line of dolls, and eventually negotiated a deal to create those dolls for competitor MGA. The new dolls became The Bratz, one of the few super successful doll lines to challenge the success of Barbie dolls. Somewhere along the line, Mattel realized that the guy had worked at Mattel, and claimed that his employment agreement meant Mattel owned pretty much all rights to Bratz dolls, and that MGA owed Mattel a billion dollars. A court sided with Mattel and didn't just say that MGA and Bratz infringed, but effectively handed over all rights to Bratz dolls -- including future plans. This made absolutely no sense to us. At the very least, if the court found that Mattel owned the rights to the original design, at most Mattel should have only been able to get damages for those original designs. Giving them rights to later designs makes no sense at all. MGA appealed noting that giving Mattel all of its plans, as demanded, would result in "devastating and irreversible consequences." After sounding skeptical late last year, Judge Kozinski in the 9th circuit has now soundly rejected most of the lower court ruling (pdf).
The ruling itself is a really good read, especially if you're interested in the difference between ideas and expression, and making sure that copyright only covers the copyrightable part of an expression. A common misconception is that copyright covers an entire work. In some cases, that's not true. Only parts of a work may get copyright protection:
Among the notable parts, the judge is troubled by the lower courts ruling that Bryant's design work that was done after hours automatically is given to Mattel. As he notes, the employment agreement says inventions that are developed while employed belong to Mattel -- and the definition of inventions does not include "ideas." And, since IP system defenders are always quick to point out that inventions and ideas are not the same thing, the judge notes that it's not at all clear that the employment agreement covers the idea of the Bratz dolls. At the very least, the court says the lower court shouldn't have ruled on summary judgment that the idea of Bratz dolls automatically belonged to Mattel. The court also noted that the terms of the employment agreement were ambiguous, such that it wasn't at all clear or obvious if things done on personal time were covered by the agreement.
But more interesting is the discussion of how much of the IP would belong to Mattel even if it's determined that MGA infringed. Kozinski clearly has problems with the decision to assign all current and future plans to Mattel, pointing out that this seems to be based on a misreading of the case law. He notes that the law does allow appreciation in value to go to the rightful owner, but mainly if that appreciation in value is due to external factors. He finds it quite troubling that Mattel should be given all of the value created through MGA's hard work:
Even assuming that MGA
took some ideas wrongfully, it added tremendous value by
turning the ideas into products and, eventually, a popular and
highly profitable brand. The value added by MGA's hard
work and creativity dwarfs the value of the original ideas Bryant
brought with him, even recognizing the significance of
those ideas....
It is not equitable to transfer this billion dollar brand--
the value of which is overwhelmingly the result of MGA's
legitimate efforts--because it may have started with two misappropriated
names. The district court's imposition of a constructive
trust forcing MGA to hand over its sweat equity was
an abuse of discretion and must be vacated.
The next part highlights that just because there were similarities between the original ideas and the Bratz dolls, it doesn't mean Mattel should get all ownership. If it is determined that Mattel holds the copyright (again, still somewhat in dispute), it should only be limited to the parts of the dolls that are covered by the copyright. Here's where the narrow protections of copyright law come into play:
In order to determine the scope of protection for the
sculpt, we must first filter out any unprotectable elements.
Producing small plastic dolls that resemble young females is
a staple of the fashion doll market. To this basic concept, the
Bratz dolls add exaggerated features, such as an oversized
head and feet. But many fashion dolls have exaggerated
features--take the oversized heads of the Blythe dolls and My
Scene Barbies as examples. Moreover, women have often
been depicted with exaggerated proportions similar to those of
the Bratz dolls--from Betty Boop to characters in Japanese
anime and Steve Madden ads. 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....
It's true that there's a broad range of
expression for bodies with exaggerated features: One could
make a fashion doll with a large nose instead of a small one,
or a potbelly instead of a narrow waist. But there's not a big
market for fashion dolls that look like Patty and Selma Bouvier.
Little girls buy fashion dolls with idealized proportions
--which means slightly larger heads, eyes and lips; slightly
smaller noses and waists; and slightly longer limbs than those
that appear routinely in nature. But these features can be
exaggerated only so much: Make the head too large or the
waist too small and the doll becomes freakish, not idealized.
....
The
only unprotectable elements the district court identified were:
(1) the dolls' resemblance to humans; (2) the presence of hair,
head, two eyes and other human features; (3) human clothes,
shoes and accessories; (4) age, race, ethnicity and "urban" or
"rural" appearances; (5) standard features relative to others
(like a thin body); and (6) other standard treatments of the
subject matter. And it reasoned that the doll's
"[p]articularized, synergistic compilation and expression of
the human form and anatomy that expresses a unique style
and conveys a distinct look or attitude" is protectable, along
with the doll fashions that expressed an "aggressive, contemporary,
youthful style." But Mattel can't claim a monopoly
over fashion dolls with a bratty look or attitude, or dolls sporting
trendy clothing--these are all unprotectable ideas....
This error was significant. Although substantial similarity
was the appropriate standard, a finding of substantial
similarity between two works can't be based on similarities in
unprotectable elements. When works of art
share an idea, they'll often be "similar" in the layman's sense
of the term. For example, the stuffed, cuddly dinosaurs... were
similar in that they were all stuffed, cuddly dinosaurs--but
that's not the sort of similarity we look for in copyright law....
MGA's Bratz dolls can't be considered substantially
similar to Bryant's preliminary sketches simply because the
dolls and sketches depict young, stylish girls with big heads
and an attitude. Yet this appears to be how the district court
reasoned
When we wrote about this case earlier, it kicked off quite a discussion. Many people insisted that because Bryant designed the dolls while employed by Mattel, Mattel easily deserved all of the benefits accrued by MGA. It's great to see Kozinski point out that this is not true, and recognize that there's a big difference between ideas, expression and execution, as well as highlighting the difference between copyright covering an entire product and just the protectable parts of a product. While one would hope all judges would understand this, clearly, many do not.
We were pretty shocked when a judge ordered doll maker MGA to hand over pretty much everything having to do with Bratz dolls to Mattel, the maker of Barbie -- one of the key products Bratz competes against. While some of the facts are disputed by various parties, it does seem pretty clear that a Mattel designer was working on the concept of Bratz and then went to MGA to make the dolls instead. Mattel claims that it owns the entire concept because its contract with the designer included all rights to things he worked on while under their employ. Even if you accept all that, it seemed to go too far to not just provide monetary payments and/or an injunction, but to tell MGA to hand over the entire line of dolls including future plans for the dolls. That seems to go well beyond the scope of what's reasonable -- and it seems like the appeals court might agree. It has lifted the original deadline for when MGA had to transfer stuff over to Mattel and seems to be considering whether itself goes too far, saying that handing all of that over to Mattel seemed "draconian."
Even if we grant that the designer created the dolls while he worked at Mattel, it takes more than just an idea to be successful. Yet this ruling seems to put the entire value of not just the Bratz line of dolls, but every forward thinking innovation in the Bratz line, into that single idea. That's going way too far. Sure, perhaps there should be some sort of sanctions or punishment, but MGA did a lot more than just see this idea, snap its fingers and have a success on its hands. The execution was what made it work, and it seems silly to ignore all of that and assume that the entire value is in the idea -- and everything else needs to be handed over because the guy had the idea while still at Mattel.
