26 July 2010

Employment Agreement Drafting Lessons from the "Barbie versus Bratz" 9th Circuit Decision

On July 22, 2010, the Ninth Circuit Court of Appeals held that Mattel, Inc., maker of the Barbie line of dolls, should not have been granted intellectual property rights ownership over the Bratz line of dolls, estimated to be worth $1 billion. The originator of the Bratz concept, Carter Bryant, presented the ideas for Bratz to MGA Entertainment, Inc., Mattel's competitor, while Bryant was an employee of Mattel (although the work Bryant performed was done after hours and at Bryant's home).

The lower court had ruled, essentially as a matter of law, that an employment agreement between Mattel and Bryant applied to capture Bryant's ideas such that Mattel was automatically the sole and exclusive owner of those ideas and any related or derivative concepts. As such, the district court held, Bryant's actions of presenting those ideas to MGA constituted trade secrets misappropriation and copyright and trademark infringement.

In overruling the district court, the Ninth Circuit held that the employment agreement was ambiguous on whether the specific Bratz concept was subject to the agreement's provisions assigning ownership of inventions to Mattel. The appellate court determined that the jury should have been allowed to decide the issue, and remanded the case for a new trial.

The employment agreement stated, in pertinent part:

I agree to communicate to [Mattel] as promptly and fully as practicable all inventions (as defined below) conceived or reduced to practice by me (alone or jointly by others) at any time during my employment by the Company. I hereby assign to the Company . . . all my right, title and interest in such inventions, and all my right, title and interest in any patents, copyrights, patent applications or copyright applications based thereon.

The term "inventions" is defined to include all "discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable."

The court found two specific ambiguities: whether the mere "idea" of an urban, multi-ethnic and trendy line of dolls with exaggerated features is captured within the definition of "inventions", and whether the Bratz concept was developed by Bryant during the period and within the scope of Bryant's employment with Mattel.

With respect to the first ambiguity, the Ninth Circuit noted that in the definition of "inventions", ideas are "markedly different" from most of the listed examples, and that as a rule of contract construction, courts should avoid interpretations that would "make a particular item in a series ... markedly dissimilar to other items on the same list." Although the court readily admitted that the contract text supports an interpretation that would include ideas, the text does not compel that reading. As such the jury should be entitled to rule on that issue, that court stated.

The second ambiguity relates to the fact that Bryant created the Bratz concept on his own time, without use of Mattel resources, and outside the scope of his duties. At Mattel, Bryant was responsible for fashions and hair styles, and not new doll lines. The phrase, "at any time during my employment", could be interpreted to mean the entire calendar period Bryant worked at Mattel, or more narrowly, as capturing only those inventions created during work hours, the court held.

The Ninth Circuit's ruling carries important lessons for employers utilizing employment agreements to ensure ownership of employee-developed works and inventions. Primarily, employment agreements should be tailored to the type of business the employer operates. The definition of "inventions" for doll fashion designers should differ from that used for computer programmers, for example.

At a minimum, in all employment agreements, "ideas" should be covered in the definition of "inventions" subject to the company's exclusive ownership rights. In fact, a prudent definition would include "proposed trademarks" as well. Here is an example of a more robust "inventions" definition: "trade secrets, inventions, mask works, ideas, innovations, processes, proposals, formulas, source and object codes, data, programs, know-how, improvements, discoveries, developments, concepts, designs, techniques and proposed trademarks."

Further, the employment agreement should clarify the exact conditions under which inventions are to be assigned. A employer-preferred employment agreement would ensure that all such inventions are assigned, whether conceived or reduced to practice during or after work hours, so long as such inventions relate to the employer's business or anticipated research and development. Example:

You agree to assign to Company all Inventions, whether or not registrable under patent, copyright, trademark or similar statutes, made, developed, conceived, reduced to practice, or learned by you, either alone or jointly with others, which relate to the Company’s business, or actual or demonstrably anticipated research or development of the Company, or which result from any work performed by you for the Company, and (a) with the use or aid of Company resources, or (b) during the general period of time (whether during or outside Company business hours) of your employment with the Company; or (c) pursuant to or in furtherance of your employment with the Company.

(Section 2870 of the California Labor Code renders unenforceable any employment agreement that purports to require assignment of inventions to the employer for inventions developed on the employee's own time and without use of the employer's resources, except for those inventions that relate to the employer's business or anticipated R&D, or which result from work performed by the employee for the employer.)

Had provisions like those suggested above had been in place in the employment agreement between Mattel and Bryant, there's a strong possibility that the case would have been resolved more quickly via settlement or summary disposition. In any case, employers would be wise to consider the lessons this case provides and adjust their employment agreements accordingly -- with the help of licensed counsel, of course.