Dolls in the Docket

 Textile Agents Just before he got up to testify in federal court on June 5, IsaacLarian cocked his shoulders back like a boxer about to enter aring. Then he smiled and winked at Angela, his wife of 24 years.The Iranian-born entrepreneur always seems up for a fight. Thesedays, he's got a big one on his hands. Larian, 54, launched one of the most successful new toy lines indecades, the Bratz line of sassy dolls. But now ownership of thoseBratz is in question. Industry giant Mattel ( MAT ) claims Larian stole the Bratz when he acquired them from designerCarter Bryant, a Mattel employee at the time. If Mattel wins itscivil lawsuit in Riverside, Calif., some Wall Street analystsestimate Larian and his privately held company, MGA Entertainment , may owe the world's largest toymaker hundreds of millions ofdollars in back royalties and punitive damages. And in the ultimateknockout 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 $22billion toy industry. It may seem like fun and games from theoutside, but behind the scenes there's cutthroat competition andbare-knuckle tactics to score the next hot toy. Mattel, allegingtheft of company secrets, persuaded government agents in Mexico andCanada to seize such things as hard drives and calendars fromformer employees who had jumped to MGA. It hired a privateinvestigator to tail one former Mattel employee who went to workfor MGA. Mattel has tried to get this reporter to testify in itscase against Larian, but judges ruled three times in BusinessWeek 's favor. The two sides have even argued in court over who got tostay at Riverside's Mission Inn, the fanciest hotel in town. Building an Empire Losing the trial to Mattel would be devastating for MGA. The Bratzline has been a gold mine. As recently as 1997, MGA was inbankruptcy. According to Mattel filings in the current suit, Larianreported $466,000 as income on his tax return in 1999. By 2002, ayear after Bratz was released, Larian was earning $34 million.Larian now sits atop an empire that Mattel claims in court papersis worth $1.9 billion. Larian's attorney disputes all of thosenumbers. In recent years Larian has used his company's surgingprofits to buy the office park in suburban Los Angeles that servesas MGA's headquarters. In 2006, he bought the popular Little Tikesbrand 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 adream," 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 tradingcapital of the world. Larian's father ran a three-person textilecompany. As a boy, Larian was something of a brat, recalls one ofhis sisters, who was attending the trial but declined to give hername. "He was always annoying," she told BusinessWeek in a brief interview. "He was always throwing tomatoes at therest of us." In 1971, Larian came to the U.S. with $750 in hispocket. He washed dishes in a diner to help pay for classes atCalifornia State University, Los Angeles, where he earned anengineering degree in 1978. He co-founded MGA with his brotherFarhad, originally as an importer of consumer electronics. Bratz dolls were an immediate hit when they hit store shelves in2001, appealing to a new generation of girls who had grown tired ofMattel's comparatively staid Barbie doll. Bratz feature bigflirtatious eyes and skimpy clothes, prompting some parents tojokingly call them "Slutz." Still the brand resonatedwith girls, producing what Mattel claims in court filings isrevenue of $500 million a year. MGA does not release sales figures.