By George Basharis, J.D.
The complaining toy maker’s California-law misappropriation claim against rival Mattel was barred by the statute of limitations because it was on notice of Mattel’s possible wrongdoing long before filing suit.
A claim of misappropriation of trade secrets by Bratz doll maker MGA Entertainment against Mattel was barred by the state three-year statute of limitations because discovery requests and an affirmative defense asserted by MGA years earlier in the parties’ long-running litigation showed that MGA was aware of possible wrongdoing by Mattel years before the claim was filed, a California state court of appeals has determined. Affirming dismissal of the claim, the court rejected MGA’s contention that the limitations period was tolled by Mattel’s alleged concealment of documents or that each act of misappropriation triggered a new limitations period. The first instance of misappropriation known to MGA put MGA on notice of Mattel’s possible violation of the California Uniform Trade Secrets Act (CUTSA), the court said (MGA Entertainment, Inc. v. Mattel, Inc., October 29, 2019, Grimes, E.).
Mattel sued MGA in federal court in 2004 claiming copyright infringement and ownership of the Bratz line of dolls. In 2007, MGA served a discovery request for documents relating to Mattel’s efforts to obtain MGA’s trade secrets and information about unreleased products by going to MGA showrooms and toy fair displays under false pretenses. MGA also asserted a factually detailed affirmative defense of unclean hands. The defense also was based on MGA’s suspicions that Mattel was spying on MGA. MGA’s suspicions were based on a report by an MGA executive who had seen a Mattel employee at a toy fair in New York.
Over three years after the discovery request and affirmative defense, MGA filed a counterclaim against Mattel for trade secret misappropriation under the CUTSA. According to the counterclaim, Mattel employees used fake credentials to gain access to MGA displays of future products in private showrooms at industry toy fairs. Mattel argued that MGA’s counterclaim was time-barred by CUTSA’s three-year limitations period.
MGA maintained that despite its assertions in both its unclean hands defense and its discovery request, the statute of limitation did not begin to run until a much later time when a former Mattel employee testified in a deposition that Mattel had gained access to private MGA showrooms at toy fairs under fictitious identities. MGA also argued that Mattel repeatedly ignored document requests and that Mattel’s "fraudulent concealment" tolled the statute of limitations.
However, MGA had a suspicion that Mattel had misappropriated MGA’s trade secrets, using false pretenses to obtain access to MGA’s unreleased products at trade fairs, and MGA articulated that suspicion in its affirmative defense and discovery request, the court noted. The statute began to run then, the court said, and Mattel’s efforts to conceal evidence of wrongdoing did not toll the statute because MGA already had notice of a potential claim against Mattel.
MGA asserted that each instance of misappropriation by Mattel started a new limitations period. However, the nature of each instance of misappropriation was the same, and MGA’s knowledge that Mattel had infiltrated one toy fair should have put it on notice that Mattel could have been spying on MGA at other toy fairs. MGA knew of its injury and articulated the precise manner in which it was being inflicted in both its discovery request and affirmative defense, the court concluded.
This case is No. B289709.
Attorneys: Peter K. Stris (Stris & Maher LLP) for MGA Entertainment, Inc. John B. Quinn (Quinn Emanuel Urquhart & Sullivan, LLP) for Mattel, Inc.
Companies: MGA Entertainment, Inc.; Mattel, Inc.
MainStory: TopStory TradeSecrets CaliforniaNews
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