For years, toy manufacturers Mattel, Inc. and MGA Entertainment have dueled over the popular Bratz line of dolls. We reported in 2008 that Mattel had won a series of victories on its claims of copyright infringement and unfair competition.

Not only was Mattel awarded $100 million by a jury, but the trial court later issued a permanent injunction ordering MGA to refrain from any further sales and production of Bratz dolls and placed the entire Bratz line of toys in a constructive trust for the benefit of Mattel.

The basis for this remedy was that Carter Bryant, an employee of Mattel who had been working on its Barbie doll line, conceived of the Bratz product line in 2000 while still employed by Mattel. He had drawn a small series of sketches, conceived of the “Bratz” and “Jade” trade names, and commissioned a sculpture of a Bratz doll.

After all this work, he revealed these drawings and trade names to MGA Entertainment rather than Mattel. A few weeks later, he jumped ship to MGA to continue his work on the Bratz product line. In 2001, MGA released its first Bratz dolls.

MGA kept Bryant’s involvement with the Bratz project secret, but Mattel eventually found out. Mattel sued for copyright infringement and breach of Mr. Bryant’s employment agreement, in which he agreed to assign to Mattel all of his inventions, patentable or unpatentable, including discoveries, improvements, and designs.

The trial judge instructed the jury that this language was sufficient to oblige Mr. Bryant to convey his ideas to Mattel. The jury in turn provided Mattel with a relatively modest award based upon copyright infringement, and a large award based upon the unfair competition and breach of contract claims. MGA appealed.

In a July 22, 2010 opinion, the Ninth Circuit took exception to the trial court’s proceedings in several ways. Regarding copyright infringement, the trial court had said that the dolls’ distinct look and fashion style were protectable.

The Ninth Circuit disagreed, saying that the trial was confusing the unprotectable idea of a bratty doll with a particular expression of that idea, for which copyright protection could be available. While the first Bratz dolls might have been derivative of the drawings that Mr. Bryant drew while with Mattel, the later dolls were so different that their only common element was their brattiness—an idea.

As to who owned the copyright in Mr. Bryant’s drawings, the Ninth Circuit criticized the trial judge’s view that Bryant was obligated to assign his ideas to Mattel. In fact, no mention of “ideas” appears in the employment contract.

Because the contract is ambiguous on the duty to assign ideas, the Ninth Circuit now wants the trial court to hear testimony and consider evidence, such as contrasting contract forms used by Mattel, to determine whether Mr. Bryant’s contract covered ideas.

The heart of the appeals court’s decision, however, was its rejection of the constructive trust that the trial court had established for Mattel’s benefit. Even if Bryant’s original ideas legally belonged to Mattel, the constructive trust was deemed inappropriate. Said the court, “It is not equitable to transfer this billion-dollar brand—the value of which is overwhelmingly the result of MGA’s legitimate efforts—because it may have started with two misappropriated names.”

If a misappropriated asset appreciates in value while wrongfully held, the court of appeals explained, that appreciation can be awarded to the wronged party through the imposition of a constructive trust.

But when the appreciation occurs because of the defendant’s efforts, the constructive trust cannot shift the fruits of the defendant’s labors to the plaintiff. Since MGA’s effort was necessary to take the project from the conceptual stage to a hugely popular brand, the constructive trust was vacated.

As the case returns to the trial court, more fireworks are likely to ensue. The decision of the Ninth Circuit seems, however, to grant custody of Yasmin and her friends Jade, Cloe, Sasha, et al. to MGA for good. Now the battle is only about money, not the care and upbringing of a hugely popular bevy of young ladies.