Dolls in the Docket

When did a former Mattel toy designer come up with the idea for Bratz? In a California court, the popular dolls' multimillion-dollar rights may ride on the answer

by Christopher Palmeri

Just before he got up to testify in federal court on June 5, Isaac Larian cocked his shoulders back like a boxer about to enter a ring. Then he smiled and winked at Angela, his wife of 24 years. The Iranian-born entrepreneur always seems up for a fight. These days, he's got a big one on his hands.

Larian, 54, launched one of the most successful new toy lines in decades, the Bratz line of sassy dolls. But now ownership of those Bratz is in question. Industry giant Mattel (MAT) claims Larian stole the Bratz when he acquired them from designer Carter Bryant, a Mattel employee at the time. If Mattel wins its civil lawsuit in Riverside, Calif., some Wall Street analysts estimate Larian and his privately held company, MGA Entertainment, may owe the world's largest toymaker hundreds of millions of dollars in back royalties and punitive damages. And in the ultimate knockout punch: Mattel could even end up owning Bratz.

The trial in U.S. District Court, Central District of California, which started May 27, provides a fascinating window into the $22 billion toy industry. It may seem like fun and games from the outside, but behind the scenes there's cutthroat competition and bare-knuckle tactics to score the next hot toy. Mattel, alleging theft of company secrets, persuaded government agents in Mexico and Canada to seize such things as hard drives and calendars from former employees who had jumped to MGA. It hired a private investigator to tail one former Mattel employee who went to work for MGA. Mattel has tried to get this reporter to testify in its case against Larian, but judges ruled three times in BusinessWeek's favor. The two sides have even argued in court over who got to stay at Riverside's Mission Inn, the fanciest hotel in town.

Building an Empire

Losing the trial to Mattel would be devastating for MGA. The Bratz line has been a gold mine. As recently as 1997, MGA was in bankruptcy. According to Mattel filings in the current suit, Larian reported $466,000 as income on his tax return in 1999. By 2002, a year after Bratz was released, Larian was earning $34 million. Larian now sits atop an empire that Mattel claims in court papers is worth $1.9 billion. Larian's attorney disputes all of those numbers. In recent years Larian has used his company's surging profits to buy the office park in suburban Los Angeles that serves as MGA's headquarters. In 2006, he bought the popular Little Tikes brand of preschool toys from Newell Rubbermaid (NWL) for an undisclosed price.

Larian owns 82% of MGA, and members of his family own the rest. "I came to this wonderful country with nothing more than a dream," Larian said in a statement to the press on June 1. "I will not let Mattel destroy that dream."

Larian was born in the Iranian city of Kashan, the rug trading capital of the world. Larian's father ran a three-person textile company. As a boy, Larian was something of a brat, recalls one of his sisters, who was attending the trial but declined to give her name. "He was always annoying," she told BusinessWeek in a brief interview. "He was always throwing tomatoes at the rest of us." In 1971, Larian came to the U.S. with $750 in his pocket. He washed dishes in a diner to help pay for classes at California State University, Los Angeles, where he earned an engineering degree in 1978. He co-founded MGA with his brother Farhad, originally as an importer of consumer electronics.

Bratz dolls were an immediate hit when they hit store shelves in 2001, appealing to a new generation of girls who had grown tired of Mattel's comparatively staid Barbie doll. Bratz feature big flirtatious eyes and skimpy clothes, prompting some parents to jokingly call them "Slutz." Still the brand resonated with girls, producing what Mattel claims in court filings is revenue of $500 million a year. MGA does not release sales figures.