MATTEL Inc, after waging a seven-year legal war against a tiny California company, swallowed a surprise defeat after a US jury decided that MGA Entertainment Inc is the rightful owner of the once-billion dollar line of pouty-lipped Bratz dolls.

The third major recall by Mattel of lead-tainted Chinese toys has left the world’s largest toymaker fighting to maintain its reputation with the crucial holiday season fast approaching.

Mattel, battered by two high-profile recalls this summer, will announce tomorrow the recall of a third batch of Chinese-made toys because they may contain excessive amounts of lead paint.