BellaOnline Forums TV and Movies Anime 4Kids loses Yu-Gi-Oh! license and faces lawsuit

On March 24, 2011, TV Tokyo and Nihon Ad Systems filed a joint lawsuit against 4Kids Entertainment, accusing the company of "underpayments, wrongful deductions, and unmet obligations" in regards to the Yu-Gi-Oh! franchise. The companies claim that 4Kids owe them US$4,792,460.36. The Hollywood Reporter states that the two companies have terminated their deal for Yu-Gi-Oh! with 4Kids.

According to the suit, the companies conducted an audit on 4Kids' Yu-Gi-Oh! business per the licensing agreement, and uncovered the underpayments. In addition, the companies claim that 4Kids had a "secret" agreement with FUNimation, allowing them to "exploit" the Yu-Gi-Oh! franchise via home video and hide the added income from the plaintiffs. The complaint also claims that 4Kids attempted to hide the deal rather than disclosing itas required by their licensing agreement.

Additionally, the complaint also alleges that 4Kids entered into a similar deal with Majesco Entertainment to create Yu-Gi-Oh! videos to be played on Nintendo's Gameboy Advance portable videogame console.

On March 30, 2011, 4Kids Entertainment filed a form 8-K report to the United States Securities and Exchange Commission to address the lawsuit. In the report, 4Kids claims that on March 27, the company informed the licensors that their letter of termination "did not comply with the 10 business day notice and cure provision" written in the agreement. 4Kids also says the company has rejected the termination letter "as wrongful and devoid of any factual legal basis," and that they intend to "vigorously oppose" said termination. Also, the company claims the licensor made a request for payment on March 4, and that 4Kids made a US$1 million payment "as a show of good faith" to earn a March 18 meeting to resolve the issues. However, the licensors moved forward wit hthe lawsuit filed on March 24.

In the filing, 4Kids acknowledges that if the lawsuit moves forward and the termination of the license is found to be valid, the company will do whatever is necessary to maintain its business, "including the potential filing" of a Chapter 11 bankruptcy petition.

On May 13, 2011, 4Kids filed a motion requesting that Shelley C. Chapman, the judge for the company's bankruptcy case, issue an order to suspend co-licensor Asatsu DK's attempts to exercise control over the Yu-Gi-Oh! anime franchise in the United States. In the motion, 4Kids states that Asatsu DX will promote Yu-Gi-Oh! Zexal (the fourth anime series in the franchise) at the Licensing Expo in June. 4Kids also argues that irreparable harm would be caused to the company if TV Tokyo and NAS grant North American Yu-Gi-Oh! licenses previously held by 4Kids to other companies.

On June 2, 2011, United States Bankruptcy Judge Shelley Chapman ordered TV Tokyo and Nihon Ad Systems to comply with an automatic stay on the licensing for the Yu-Gi-Oh! anime franchise. In her order, Judge Chapman says the owners cannot re-license the franchise or otherwise exercise control over rights to the franchise.

Judge Chapman also said in her order that the trial on the franchise's licensing will proceed in two phases. The first phase will determine whether TV Tokyo and NAS' announced cancellation of 4Kids' license was valid. The second phase will determine whether 4Kids owes the owners money and exactly how much. 4Kids must respond to the lawsuit by June 10, followed by discovery, objections, and witness lists. The first phase of the trial is scheduled to begin on August 29, 2011.

United StatesBankruptcy Judge Shelley C. Chapman has ruled that 4Kids Entertainment's licensing agreement for the Yu-Gi-Oh! anime franchise is still in effect.

In her ruling, Judge Chapman found that the Japanese consortium that controls the rights for the franchise did not effectively terminate the agreement with 4Kids Entertainment. She also said in her ruling 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 the breach of contract, but Judge Chapman determined that "4Kids never received a proper and effective notice."

4Kids Entertainment has announced that there has been an amicable settlement for the lawsuit between 4Kids Entertainment and Asatsu-DK and TV Tokyo over the license for the Yu-Gi-Oh! franchise.

According to the company, the licensing agreement between the three parties will continue to be "in full force and effect with 4Kids continuing to serve as the exclusive licensing agent for the merchandise licensing, television broadcast, and home video rights to the Yu-Gi-Oh! property throughout the world outside of Asia."

The Hollywood Reporter has reported that Asatsu-DK and TV Tokyo will pay US$8 million to 4Kids Entertainment as a part of the settlement.