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.”
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However, Judge Chapman determined that seven of these audit findings (1, 2, 3, 4, 5, 6, and 9) were withdrawn by the consortium or were meritless.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.