MGA currently manufactures the big-headed Bratz dolls, which it says is now a billion-dollar franchise. However, Mattel is claiming that it owns the copyright, because its former employee Carter Bryant designed the doll.
Mattel, which makes Barbie dolls, said that MGA secretly bought Bryant's design and tried to cover up Bryant's involvement.
John Quinn, Mattel's attorney, told the federal court in Riverside, California: "For nearly a year the designer had been working on a doll he called Bratz.
"MGA didn't hire him right away. They polished the fashion doll design using Mattel resources and Mattel personnel."
MGA denies the claims and is arguing that Bryant conceived the Bratz doll in 1998 while he was on an eight-month break from Mattel.
However, Mattel intend to prove that Bryant made the original drawings on paper torn from a Mattel-provided notebook after he signed an "invention agreement" that handed the rights of anything he created to Mattel once he returned to the company in January 1999.
Bratz dolls, which launched in 2001, come in multi-ethnic characters dressed in urban chic outfits.