Mattel won a major victory in its copyright infringement lawsuit against the maker of the rival Bratz dolls.
A jury ruled that a designer conceived the doll characters while working for Mattel, the world's largest toymaker. The ruling could potentially mean millions of dollars for Mattel when the jury considers possible damages during a separate proceeding.
The news of the verdict came after the close of regular-session trading on Wall Street, but Mattel's shares shot up $1.22, or 6.7 per cent, to $19.50 in after-hours dealings.
Mattel has claimed it owned the rights to the Bratz line because its creator, Carter Bryant, came up with the concept while working for Mattel.
The jury also ruled that MGA and its Chief Executive Officer Isaac Larian were liable for converting Mattel property for their own use and intentionally interfering with the contractual duties owed by Bryant to Mattel.
"MGA and Isaac Larian took what did not belong to them," John Quinn, a lawyer for Mattel, said during a conference call detailing the verdict.
Larian said in a prepared statement that MGA will prevail in the upcoming damages phase of the case or possibly in the Ninth Circuit Court of Appeal.
"This is because it is undisputed that MGA -not Carter Bryant - independently created the Bratz dolls," Larian said. "Carter Bryant did not have anything to do with the many Bratz-related products we created, such as Bratz Babyz, Lil' Bratz and Bratz Kidz."
The statement noted that jurors must still decide if Mattel owns any copyrights involving Bryant's drawings. If so, the jury must rule on whether the dolls infringe on those copyrights.
Mattel attorneys argued Bryant worked for the company between September 1995 and April 1998 and then returned for a second stint at Mattel between January 1999 and October 2000.
He signed an agreement that gave Mattel the right to anything he designed while employed there, the lawyers argued.
Mattel said MGA began showing Bratz prototypes a month after Bryant left Mattel and began selling the hugely popular dolls in toy stores five months later.
But Bryant testified during the six-week trial that the sketches he showed MGA in 2000 were transferred from originals he made in the summer of 1998 - between his two employment stints with Mattel - that were inspired as he watched kids walking from school, Steve Madden shoe ads in Seventeen magazine, and the cover of a Dixie Chicks album.
MGA has countersued, saying Mattel changed the design of its own My Scene dolls to more closely resemble the Bratz line and used its leverage with retailers to stifle competition.