Mattel, Inc. v. MGA Entm't, Inc. - 616 F.3d 904 (9th Cir. 2010)

Rule:

In general, the beneficiary of a constructive trust is entitled to enhancement in value of the trust property. This is so not because the beneficiary has a substantive right to the enhancement but rather to prevent unjust enrichment of the wrongdoer-constructive trustee. It is simple equity that a wrongdoer should disgorge his fraudulent enrichment. This principle has the greatest force where the appreciation of the property is due to external factors rather than the efforts of the wrongful acquisitor. When the defendant profits from the wrong, it is necessary to identify the profits and to recapture them without capturing the fruits of the defendant's own labors or legitimate efforts. This is because the aim of restitution has been to avoid taking the defendant's blood along with the pound of flesh. A constructive trust is therefore not appropriate to every case because it can overdo the job. 

Facts:

While still employed by Mattel, Inc., the producer of Barbie, Carter Bryant provided MGA Entertainment, one of Mattel's competitors, with sketches and a preliminary sculpt for Bratz line of dolls. Mattel claimed that Bryant violated his employment agreement by taking his ideas to MGA. Based on a jury's findings, the district court imposed a constructive trust in favor of Mattel over MG’s trademarks and enjoined MGA from producing certain dolls. MGA appealed.

Issue:

Did the district court err in imposing a a constructive trust in favor of Mattel over MG’s trademarks?

Answer:

Yes

Conclusion:

The court of appeals held that the constructive trust was improperly imposed. The district court erroneously held as a matter of law that the employment agreement assigned Bryant’s ideas to Mattel. The agreement could be so interpreted, but was ambiguous. Also, the value of the trademarks involved was significantly greater because of MGA’s own development efforts. The district court also erred in finding that the agreement clearly assigned works that were made outside the scope of Bryant’s employment, which required reversal of the jury's finding that the sketches and sculpt were assigned to Mattel. Regarding the copyright claim, the sculpt was erroneously given broad protection when only thin protection applied, and some unprotectable elements of the sketches were not filtered out prior to a determination that MGA’s dolls were substantially similar.