The 9th Circuit Court of Appeals has overturned a $172 million trade secret judgment in favor of Mattel in the case of MGA Entertainment v. Mattel. MGA and Mattel have been embroiled in litigation for several years over the alleged misappropriation of trade secrets related to the Bratz doll line.
In overturning the second jury award in this ongoing dispute, the 9th Circuit Court of Appeals held that MGA’s counterclaim was not compulsory and, consequently, should not have reached the jury. Under federal law, compulsory counterclaims must arise out of “the transaction or occurrence that is the subject matter of the opposing party’s claim.” See FRCP 13(a)(1)(A). The district court found that MGA’s trade secret claim was compulsory because it could be inferred that some of the trade secret information that MGA took from Mattel could be trade secret information that Mattel initially took from MGA. Thus, the district court found, MGA’s trade secret claim arose out of the same transaction or occurrence.
The 9th Circuit disagreed, and it ultimately found MGA’s counterclaim was not related because it did not arise out of the same facts. The 9th Circuit stressed that, with regard to compulsory counterclaims, the facts are what are important, not the legal theory. Thus, the 9th Circuit overturned the district court’s ruling and it appears that this case will again proceed to a third jury trial.