Mattel, Inc. v. Mga Entertainment, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MATTEL, INC., a Delaware No. 11-56357
corporation; MATTEL DE MEXICO
S.A. DE C.V., D.C. No.
Plaintiffs-Appellants, 2:04-cv-09049-
DOC-RNB
v.
MGA ENTERTAINMENT , INC., a OPINION
California corporation; MGA
ENTERTAINMENT (HK) LIMITED , a
Hong Kong Special Administrative
Region business entity; MGAE DE
MEXICO , S.R.L. DE C.V., a Mexico
business entity; ISAAC LARIAN ;
CARLOS GUSTAVO MACHADO
GOMEZ; OMNI 808 INVESTORS, LLC;
IGWT 826 INVESTMENTS, LLC,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
December 10, 2012—Pasadena, California
Filed January 24, 2013
2 MATTEL V . MGA ENTERTAINMENT
Before: Alex Kozinski, Chief Judge, Stephen S. Trott
and Kim McLane Wardlaw, Circuit Judges.
Opinion by Chief Judge Kozinski
SUMMARY*
Copyright
The panel affirmed in part and reversed the district court’s
judgment, after a new jury trial on remand from this court, in
an action under the Copyright Act.
On remand, the jury rejected the claim of Mattel, Inc., that
MGA Entertainment, Inc., infringed Mattel’s copyrights by
producing Bratz dolls. The jury also found that Mattel
misappropriated MGA’s trade secrets, and the district court
awarded attorneys’ fees and costs to MGA under the
Copyright Act.
The panel held that MGA’s counterclaim-in-reply for
misappropriation of trade secrets under California law was
not compulsory and thus was not properly permitted because
it did not rest on the same aggregate core of facts as Mattel’s
trade secret misappropriation counterclaim. The panel
vacated the jury’s verdict on MGA’s claim, as well as related
damages, fees, and costs.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
MATTEL V . MGA ENTERTAINMENT 3
The panel held that the district court did not abuse its
discretion in awarding attorneys’ fees under the Copyright Act
to MGA, the prevailing party on the copyright infringement
claim.
COUNSEL
Kathleen M. Sullivan (argued), Quinn Emanuel Urquhart &
Sullivan, LLP, New York, NY; John B. Quinn, Susan R.
Estrich and Michael T. Zeller, Quinn Emanuel Urquhart &
Sullivan, LLP, Los Angeles, CA, for Plaintiffs-Appellants.
Clifford M. Sloan (argued), Allon Kedem and David W.
Foster, Skadden, Arps, Slate, Meagher & Flom LLP,
Washington, D.C.; Thomas J. Nolan, Jason D. Russell and
Hillary A. Hamilton, Skadden, Arps, Slate, Meagher & Flom
LLP, Los Angeles, CA, for Defendants-Appellees.
OPINION
KOZINSKI, Chief Judge:
The last time Mattel and MGA were here, we predicted
that “the entire case will probably need to be retried.” Mattel,
Inc. v. MGA Entm’t, Inc., 616 F.3d 904, 918 (9th Cir. 2010).
On remand, the district court agreed and ordered a new trial.
The jury rejected Mattel’s claim that MGA infringed Mattel’s
copyrights by producing Bratz dolls. While Mattel doesn’t
challenge that result, it does challenge the jury’s verdict that
Mattel misappropriated MGA’s trade secrets, and the district
4 MATTEL V . MGA ENTERTAINMENT
court’s award of attorneys’ fees and costs to MGA under the
Copyright Act.
I. BACKGROUND
In late 2006, Mattel sought leave to amend its complaint
by adding a claim that MGA had stolen its trade secrets. The
district court allowed Mattel to plead the claim, but only as a
counterclaim. Then, in 2010, after we had decided the first
appeal, MGA filed a new claim against Mattel for
misappropriating its trade secrets. See Cal. Uniform Trade
Secrets Act, Cal. Civ. Code § 3426 et seq. Mattel moved to
dismiss MGA’s claim, arguing that the statute of limitations
had run because the events at issue happened more than three
years earlier. See Cal. Civ. Code § 3426.6. The district court
denied Mattel’s motion, concluding that “Mattel’s trade secret
misappropriation counterclaim and MGA’s trade secret
misappropriation counterclaim-in-reply are logically related.”
Thus, MGA’s counterclaim-in-reply was compulsory and
therefore permissible.
The jury found for MGA, and awarded more than $80
million in damages. The district court then awarded MGA an
equal amount in exemplary damages under the California
Uniform Trade Secrets Act, which authorizes exemplary
damages if the misappropriation was “willful and malicious.”
Cal. Civ. Code § 3426.3(c). The court also awarded trade-
secret attorneys’ fees and costs. In addition, because the jury
found for MGA on Mattel’s copyright claim, the district court
awarded attorneys’ fees and costs to MGA under the
Copyright Act. See 17 U.S.C. § 505.
MATTEL V . MGA ENTERTAINMENT 5
Mattel appeals both the district court’s decision that
MGA’s trade-secret counterclaim was compulsory and the
award of fees under the Copyright Act.
II. ANALYSIS
A. MGA’s trade-secret claim
Counterclaims-in-reply are permitted only if they are
compulsory. See Davis & Cox v. Summa Corp., 751 F.2d
1507, 1525 (9th Cir. 1985), superseded on other grounds by
28 U.S.C. § 1961. To be compulsory, a counterclaim must
“arise[] 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). We apply “the logical relationship test for
compulsory counterclaims.” In re Pegasus Gold Corp.,
394 F.3d 1189, 1195–96 (9th Cir. 2005) (internal quotation
marks omitted). “A logical relationship exists when the
counterclaim arises from the same aggregate set of operative
facts as the initial claim, in that the same operative facts serve
as the basis of both claims or the aggregate core of facts upon
which the claim rests activates additional legal rights
otherwise dormant in the defendant.” Id. at 1196 (internal
quotation marks omitted); see also Moore v. N.Y. Cotton
Exch., 270 U.S. 593, 610 (1926).
MGA’s claim did not rest on the same “aggregate core of
facts” as Mattel’s claim. While Mattel asserted many claims
that covered numerous interactions between Mattel and
MGA, Mattel’s specific allegations regarding trade secrets
were that several of their employees, including Gustavo
Machado and Ron Brawer, defected to MGA and disclosed
Mattel’s trade secrets. By contrast, MGA’s trade-secret claim
6 MATTEL V . MGA ENTERTAINMENT
rested on allegations that Mattel’s employees stole MGA
trade secrets by engaging in chicanery (such as masquerading
as buyers) at toy fairs. That both Mattel and MGA claimed
they stole each other’s trade secrets isn’t enough to render
MGA’s counterclaim compulsory. In re Pegasus, 394 F.3d at
1196. What matters is not the legal theory but the facts.
“[E]ven the most liberal construction of [‘transaction’] cannot
operate to make a counterclaim that arises out of an entirely
different or independent transaction or occurrence compulsory
under Rule 13(a).” 6 Charles A. Wright & Arthur R. Miller,
Federal Practice & Procedure § 1410, at 52 (3d ed. 2010).
The district court ruled that it was “more than reasonable
to conclude at least some of the trade secret information
allegedly misappropriated by Machado and Brawer
incorporated trade secret information” that Mattel had stolen
from MGA. But this is not borne out by the pleadings, as the
district court recognized: “MGA does not expressly allege
that Machado and/or Brawer brought market intelligence
group information to MGA from Mattel.” Nor would it
matter if they had. That the same information may have
shuttled back and forth between Mattel and MGA isn’t a
sufficient nexus to support a compulsory counterclaim.
Because MGA’s trade-secret claim should not have
reached this jury, we vacate the verdict along with the related
damages, fees and costs. See Cal. Civ. Code
§§ 3426.3(c), 3426.4. On remand, the district court shall
dismiss MGA’s trade-secret claim without prejudice.
MATTEL V . MGA ENTERTAINMENT 7
B. Copyright Attorneys’ Fees
Whether or not a prevailing party is entitled to attorneys’
fees under the Copyright Act “is reposed in the sound
discretion of the district courts.” Fantasy v. Fogerty, 94 F.3d
553, 555 (9th Cir. 1996) (Fogerty II); see also 17 U.S.C.
§ 505. The most important factor in determining whether to
award fees under the Copyright Act, is whether an award will
further the purposes of the Act. Fogerty II, 94 F.3d at 558.
The Act’s “ultimate aim is . . . to stimulate artistic creativity
for the general public good.” Twentieth Century Music Corp.
v. Aiken, 422 U.S. 151, 156 (1975). That aim is furthered
when defendants “advance a variety of meritorious copyright
defenses.” Fogerty v. Fantasy, 510 U.S. 517, 527 (1994)
(Fogerty I).
Here, the district court explained, “MGA [has] secured the
public’s interest in a robust market for trendy fashion dolls
populated by multiple toy companies.” MGA’s “contribution
to the state of the law in the field of copyright in a case of this
magnitude and notoriety” was important because MGA’s
“failure to vigorously defend against Mattel’s claims could
have ushered in a new era of copyright litigation aimed not at
promoting expression but at stifling the ‘competition’ upon
which America thrives.” The district court did not abuse its
discretion in awarding MGA fees for fighting against Mattel’s
claim “that was stunning in scope and unreasonable in the
relief it requested.”
Mattel argues that, because its claim was objectively
reasonable, MGA is not entitled to fees. This argument seeks
to resurrect the long-rejected requirements of frivolousness
and bad faith. See Apple Computer, Inc. v. Microsoft Corp.,
8 MATTEL V . MGA ENTERTAINMENT
35 F.3d 1435, 1448 (9th Cir. 1994). At one point, a copyright
defendant had to show that the plaintiff’s claim was frivolous
or made in bad faith in order to be entitled to fees; but no
longer. Id. Even assuming Mattel’s claim was objectively
reasonable, the district court didn’t abuse its discretion in
awarding MGA fees.
Mattel also maintains that it should have been provided
with unredacted copies of MGA’s legal invoices. But the sort
of information Mattel seeks is attorney work product. See
MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 505 (9th Cir.
1986). Protecting MGA’s work product was particularly
important here, because MGA was still engaged in litigation
with Mattel. In any event, the district judge reviewed
unredacted invoices in camera, which is a sufficient safeguard
against unreasonable bills.
Mattel’s remaining arguments about apportionment and
calculation are equally unconvincing. The district court
properly exercised its discretion in awarding and calculating
attorneys’ fees and costs. See Entm’t Research Group, Inc. v.
Genesis Creative Group, Inc., 122 F.3d 1211, 1216–17 (9th
Cir. 1997).
III. CONCLUSION
MGA’s claim of trade-secret misappropriation was not
logically related to Mattel’s counterclaim; we therefore
reverse the district court’s holding that MGA’s counterclaim-
in-reply was compulsory. Because the district court did not
abuse its discretion in awarding fees and costs under the
Copyright Act, we affirm that award.
MATTEL V . MGA ENTERTAINMENT 9
While this may not be the last word on the subject,
perhaps Mattel and MGA can take a lesson from their target
demographic: Play nice.
AFFIRMED IN PART, REVERSED IN PART AND
REMANDED.
NO COSTS.