A federal district court erred by imposing a constructive trust over all trademarks related to the "Bratz" line of collectible dolls, essentially transferring the Bratz trademark portfolio to toy company Mattel from competitor MGA, the U.S. Court of Appeals in San Francisco has held. The transfer prohibited MGA from marketing any Bratz-related product.

A designer under contract with Mattel had pitched the original idea for the Bratz dolls to MGA. The district court decided that the designer's employment agreement assigned his ideas to Mattel. A jury determined that the designer had thought of the name "Bratz" while he was employed by Mattel, as well as the name of one of the dolls, "Jade." The agreement --which referred to "inventions" --could be interpreted to cover ideas, but the text did not compel that reading, according to the appellate court. The district court erred by failing to consider extrinsic evidence as to the meaning of "invention" in the design industry.

Regardless of the scope of the employment agreement, it was inequitable to impose a trust over the entire trademark portfolio --which was estimated to be worth $1 billion --when it had been found that MGA appropriated, at most, the names "Bratz" and "Jade." The value of the marks MGA eventually developed for the entire Bratz doll line was significantly greater because of MGA's own development efforts, marketing, and investment, the court said.

In general, the beneficiary of a constructive trust is entitled to enhancement in value of the trust property, but when the value of the property increases significantly because of a defendant's efforts, a constructive trust that passes on the profit of the defendant's labor to the plaintiff usually goes too far. The value added by MGA's hard work and creativity dwarfed the value of the original ideas the designer brought with him, in the court's view. Accordingly, the relief granted by the district court was vacated.

Mattel, Inc., 9th Cir., ¶61,657.