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4Kids' Yu-Gi-Oh! License Is Still in Force, Court Rules

posted on 2011-12-31 10:00 EST
Bankruptcy judge: Japanese consortium did not properly terminate agreement

On Thursday, United States Bankruptcy Judge Shelley C. Chapman ruled that 4Kids Entertainment's licensing agreement for the Yu-Gi-Oh! anime franchise is still in effect. Judge Chapman found that the Japanese consortium that controls Yu-Gi-Oh! rights — Nihon Ad Systems (NAS), TV Tokyo, and ADK — did not effectively terminate the agreement with 4Kids Entertainment.

As written in the court's findings: "Like characters in the Yu-Gi-Oh! series itself, 4Kids and the Consortium were locked in a high stakes duel over the future of the series in the Western world and, by extension, the survival of 4Kids as a going concern. On March 24, 2011, the Consortium attempted to end the duel by issuing a letter that purports to terminate its licensing agreement with 4Kids."

Alleged Royalty Underpayments

The Consortium claimed in March that 4Kids hid income that should have been subject to US$4,819,354.63 in royalties for the Japanese owners:

1 Unreported Funimation Home Video Revenue US$1,967,000.00
2 Unreported Majesco Home Video Revenue US$91,666.50
3 Unsubstantiated International Withholding Taxes US$2,265,767.16
4 Unreported Post June 2008 Home Video Revenue US$26,894.27
5 Unauthorized Audit Fee Deduction US$105,111.20
6 Unauthorized E&O Insurance Cost US$67,328.45
7 Unauthorized Bank Charges US$4,270.58
8 Other Unauthorized Deductions US$43,554.59
9 Other Recovery – Material and Courier Cost US$247,771.88

However, Judge Chapman determined that seven of these audit findings (1, 2, 3, 4, 5, 6, and 9) were withdrawn by the consortium or were meritless. The court emphasized that "the invalidity of any single one of these Findings is sufficient to support the ultimate conclusion that termination was ineffective."

Judge Chapman further found that the consortium did not follow the proper procedure for terminating its agreement with 4Kids, under the terms listed in the agreement itself. The agreement dictated that 4Kids should have had a period of time to correct a claimed breach of contract, but the judge stated that "4Kids never received a proper and effective notice" of this.

2011 Timeline

4Kids filed for bankruptcy in April, but continued to operate in the meantime. The company had previously stated it might have to file for bankruptcy due to the consortium's Yu-Gi-Oh! lawsuit. The lawsuit judge then remanded, or sent, the lawsuit to the bankruptcy court due to the connection between the two cases.

Meanwhile, a new Yu-Gi-Oh! anime series, Yu-Gi-Oh! Zexal, premiered in Japan on April 11. ADK and TV Tokyo planned to pitch Yu-Gi-Oh! Zexal to international licensees at the Licensing International Expo, but 4Kids filed a legal motion against this.

In June, Judge Shelley C. Chapman of 4Kids' bankruptcy case ordered a stay, barring ADK and TV Tokyo from selling the license to another company until the case of alleged fraudulent underpayment was resolved. 4Kids then promoted Yu-Gi-Oh! Zexal in a Las Vegas event in June attract potential merchandise producers.

4Kids has since adapted Yu-Gi-Oh! Zexal into English, and it began airing the new anime in its CW4Kids Toonzai programming block on October 15.

Thanks to Seth Irskens and ravegrl for the news tips.

Image © 1996 Kazuki Takahashi
© 2011 NAS, TV Tokyo


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