MAT Mattel Inc

   ("=WSJ: MGA Entertainment Wins Back Rights To Bratz Dolls," published at 5:09 p.m. ET, gave an incorrect month for when 10 new Bratz dolls will hit store shelves). 
 
   By Ann Zimmerman 
   Of THE WALL STREET JOURNAL 
 

Toy maker MGA Entertainment Inc. notched a significant legal victory Thursday, winning back the rights to its popular Bratz doll line from Mattel Inc. (MAT), but the long-running doll war case will likely be retried.

In a unanimous decision, the Ninth U.S. Circuit Court of Appeals in San Francisco threw out a district court's injunction that essentially ordered MGA to turn over its line of pouty-lipped, big headed Bratz dolls to Mattel, maker of the iconic Barbie doll.

"We always believed that in the end the right thing would happen," said MGA Chief Executive Isaac Larian, referring to Thursday's ruling.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

The court ruled that the trial judge had made errors in instructing the jury. As a result, "it's likely that a significant portion--if not all--of the jury verdict and damage award should be vacated, and the entire case will probably need to be retried," wrote Chief Judge Alex Kozinski.

"We look forward to a full trial on all of Mattel's claims against MGA," Mattel said in a statement.

In anticipation of winning the appeal, Larian manufactured 10 new Bratz dolls that will hit store shelves in October. Calling it a calculated gamble, he said, "If I had let Bratz die and they ruled in my favor, [the brand] would have been dead."

Two years ago, a jury in Riverside, Calif., awarded Mattel $100 million in damages in a closely followed lawsuit that claimed copyright infringement and breach of contract because the dolls' designer was under contract to Mattel when he developed the Bratz concept and sold it to MGA.

At the time, federal Judge Stephen Larson further ordered that MGA hand over the Bratz franchise and name to Mattel by the beginning of 2010 and destroy all Bratz products remaining on store shelves.

A three-judge federal appeals-court panel suspended that order in December until the court ruled on MGA's appeal, which argued that Judge Larson overreached in his decision and questioned the extent to which a corporation can own its employees' ideas.

MGA took a big financial hit in the lawsuit, spending more than $100 million in legal fees and losing the revenue stream from the company's biggest toy brand. At its height in 2005, Bratz generated more than a $1 billion a year in sales that cut deeply into Mattel's sales of Barbie dolls. Bratz dolls' popularity has faded recently; analysts estimate the dolls generated about $300 million in revenue last year.

Since the trial judge's ruling, the proceeds from Bratz sales has been put into an escrow account until all appeals have been exhausted.