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In an explosive counterclaim filed in federal district court late Monday night, MGA Entertainment Inc. fired off a new round in the Barbie v. Bratz doll war, accusing Mattel Inc. of carrying out an elaborate corporate espionage scheme in which Mattel employees lied about their identities in order to gain access to confidential information about MGA products and those of dozens of other toy industry rivals. MGA’s attorneys at Orrick, Herrington & Sutcliffe accuse top Mattel executives—including general counsel Robert Normile—and attorneys for Mattel from Quinn, Emanuel, Urquhart & Sullivan of engaging in a racketeering conspiracy and of stealing trade secrets. Mattel, the MGA filing claims, used “false pretenses” to gain access to private showrooms set up by its competitors at industry trade shows that Mattel employees were otherwise barred from entering. In filing the new counterclaim, MGA may be trying to capitalize on its recent victory at the U.S. Court of Appeals for the Ninth Circuit. A panel of judges from that court recently overturned an injunction that would have allowed Mattel to seize control of MGA’s Bratz doll line, which reportedly earned the company as much as $1 billion per year. Had the injunction been allowed to proceed, it would have been a punishment virtually without precedent in intellectual property law. The MGA counterclaim explains that in the toy industry, manufacturers often set up private showrooms where they show retailers their newest, hottest toys. Entry into those showrooms is regulated, and access is only granted to toy retailers and toy distributors. Mattel, the MGA brief notes, has limited access to its own toy showroom since at least 1998. MGA claims in its brief that employees assigned to Mattel’s “market intelligence” division would go to Kinko’s, and print up fake business cards, which they used to gain access to their competitors’ private showrooms and make recordings of what they saw with “spy cameras” purchased by Mattel. This happened, MGA claims, at toy fairs around the world, such as the annual New York Toy Fair, a major trade show staged in Manhattan every February. MGA’s lawyers allege that Mattel has been getting access to confidential information in this manner since at least 1992. By “lying and stealing every year,” Mattel was able to assemble an “unparalleled library” of its competitors’ plans and products, MGA claims. This library–housed on the ninth floor of Mattel headquarters in El Segundo, California–allegedly includes “information about products that have not yet seen the light of day and might well be considered by their originators for future seasons.” Access to the library was tightly controlled, and the brief specifically states that Mattel’s legal department made use of the library. The corporate espionage plan didn’t just involve low-level employees, either. The reports generated by the “market intelligence” group were seen by “Mattel executives all the way up to CEO Bob Eckert.” The MGA brief also states that Mattel in-house lawyers were deeply involved in the scheme to spy on competitors. For instance, MGA claims, Mattel hired Bain & Company, a strategic consulting firm, to help it put together a “complete and detailed profile of MGA,” including confidential information. A Mattel lawyer named Michael Moore worked together with Bain to edit the profile and “remove information deemed potentially harmful to Mattel’s position in this litigation,” MGA claims. The MGA brief also states that Mattel GC Normile was told about “the fraudulent practice of stealing information using false credentials by no later than the end of 2005, but the practice nonetheless continued.” In late 2005, MGA contends, Sal Villasenor, a Mattel employee at the center of the alleged spying operation, told Normile “that he could no longer lie and steal to get information—especially in light of MGA’s allegations” and that “he believed his conduct was unlawful and exposed him to potential criminal liability.” When Villasenor decided to leave the company in 2006, MGA claims, Mattel in-house lawyer Jill Thomas worked together with Quinn Emanuel lawyers and arranged to pay Villasenor “hush money in the form of a lucrative severance package.” The Quinn Emanuel lawyer, MGA says, “had full knowledge of the depth and breadth of Mattel’s spying on competitors,” according to MGA. MGA says it requested documents related to Mattel’s spying on competitors “no later than the end of 2006,” but the documents were not produced. Why is all this coming up now? MGA’s Orrick lawyers explain in the brief that much of the information was gleaned from a deposition taken from Villasenor on July 12. In an interview with sibling publication The Am Law Litigation Daily, Quinn Emanuel partner Michael Zeller described MGA’s most recent claims as “second-rate tactics by desperate lawyers” that “won’t survive the pleading stage.” “MGA engages in these public relations blitzes,” Zeller said. “It’s done to obscure the truth about [MGA's] own tactics.” A Mattel spokeswoman responded to the counterclaim with a statement released Tuesday. “These eleventh hour claims are without merit,” the company stated. “They are a cynical attempt to deflect attention from MGA’s own wrongdoing,” Annette Hurst, the Orrick partner who wrote the counterclaim brief for MGA Entertainment, declined to comment. Docments mentioned in this story:

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