UPDATE 2-Mattel accused in Bratz battle of spying on rivals

* MGA says Mattel sought unfair advantage

* New trial over Bratz dolls set for January

* Shares of Mattel rise 3 pct
(Adds more details from filing, Mattel comment, byline;
previous dateline NEW YORK)

By Jonathan Stempel and Dan Levine

NEW YORK/SAN FRANCISCO, Aug 17 (BestGrowthStock) – Mattel Inc
(MAT.O: ) 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.

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

Mattel allegedly gained access to the showrooms of other
toy makers, including Hasbro Inc (HAS.N: ), Lego and Sony Corp
(6758.T: )(SNE.N: ), 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 Chief Executive 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,” 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 Bratz
franchise. This cleared the way for a possible Jan. 11 trial
over who can sell the pouty-lipped, multi-ethnic dolls.

SPY CAMERAS

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 honoring, MGA alleges.

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. 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.

Without proof, the methods used to gain that data wouldn’t
necessarily matter, 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 gray area,
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,” Halligan said.

In August 2008, a federal jury in Riverside, California,
had ordered MGA and 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.

Mattel is based in El Segundo, California, while MGA has
offices in Van Nuys, California.

Shares of Mattel rose 3 percent to $22.37 on Nasdaq at
mid-afternoon.

The case is Bryant v. Mattel Inc, U.S. District Court,
Central District of California, No. 04-09049.
(Reporting by Jonathan Stempel in New York and Dan Levine in
San Francisco; Additional reporting by Anurag Kotoky in
Bangalore and Dhanya Skariachan in New York; Editing by Kavita
Chandran, Lisa Von Ahn and Richard Chang)

UPDATE 2-Mattel accused in Bratz battle of spying on rivals