4Kids Entertaiment Sued over Yu-Gi-Oh!

The original Japanese companies for the Yu-Gi-Oh! Duel Monsters franchise, TV Tokyo and Nihon Ad Systems filed a joint lawsuit against North American anime distributor, 4Kids Entertainment, accusing the company of "underpayments, wrongful deductions, and unmet obligations" and stating that 4Kids now owes the companies US$4,792,460.36. Asides from suing 4Kids, they also terminated their deal with them.

According to TV Tokyo and Nihon Ad Systems, the terms of their agreement with 4Kids were such that they would be paid 50% of 4Kids' gross income derived from the Yu-Gi-Oh! franchise. The agreement also allowed 4Kids to enter into licensing agreements for the home video rights for the franchise, provided that they use "customary forms of license agreements."

According to the documents filed by the complainants, they conducted an audit on regarding 4Kids' business ventures and it is revealed that 4Kids made a "secret" agreement with Funimation to release official home videos of the anime and hide its total income. By hiding this income, TV Tokyo and Nihon Ad Systems allege that 4Kids was able to pay them a smaller share than would otherwise have been owed to them. The complaint further alleges that 4Kids attempted to hide the secret deal rather than disclosing it as required by their licensing agreement. Funimation is not listed as a defendant in the complaint.

According to the complainants, the agreement with Funimation started on March 1, 2002, which granted them the "broad right to exploit" the franchise and would pay 4Kids a royalty of 20% of its gross receipts. It is also aleged that the two companies also entered into a "secret" second agreement for Yu-Gi-Oh! and other titles, under which Funimation undertook the majority of the work releasing home video products and paid 4Kids a US$1.3 million advance and a "service fee" for each sale.

According to the complaint, this service fee added up to US$3.934 million and was not reported as income in 4Kids' quarterly reports. As such, the Japanese companies were not paid royalties from this "kick back."

The complaint further alleges that 4Kids entered into a similar deal with Majesco Entertainment to create Yu-Gi-Oh! videos to be played on Gameboy Advanced. Under this deal, 4Kids paid royalties on the US$366,667 advance paid by Majesco, but reported its $1 kick back per video sold as a service fee, not as income, and did not pay royalties on it.

Source: The Hollywood Reporter, Anime News Network

And it seems that 4Kids will have quite trouble with the original companies considering that most of the physical evidences regarding 4Kids' "secret" deals is not so secret after all since the copies of the DVDs and the games are available online.