4Kids Files for Bankruptcy Protection Following TV Tokyo Litigation

US commercial licensor and media distributor 4Kids Entertainment has filed for bankruptcy protection under Chapter 11 rules today following litigation first filed by licensing partners TV Tokyo and NAS (Nihon Ad Systems) and revealed on March 29th regarding withheld royalties from the licensing and distribution of the Yu-Gi-Oh animated series via broadcast television and via DVD through outside agreements made by the New York-based company.

The press release was posted to the Yahoo! Finance portal earlier this afternoon with quotes from the executive team.

The bankruptcy filing affects the suit as it triggered an automatic delay of progress in the litigation while the company attempts to continue operations and reorganize operations. The European subsidiary is interestingly, not affected by the filing and is expected to continue operations as normal.

On the week ending  March 18th, both TV Tokyo and NAS filed joint litigation against 4Kids Entertainment, alleging that the American distributor deliberately withheld royalty income from the distribution of Yu-Gi-Oh in the United States by signing outside agreements to distribute the series on DVD and other mediums with the intent to defraud the master licensors out of income after an audit of its operations was completed, which led to the termination of the license. Parties named in the audit that were the beneficiaries of the outside agreements include Funimation Entertainment and video game publisher Majesco.

4Kids has since countered with its own defense, stating that the allegations are untrue and attempted to pay a $1 million bond of good faith to appease TV Tokyo without success, but the audit also revealed that it also licensed out other series without permission, potentially weakening its defense.  With the bankruptcy filing underway, it remains to be seen what TV Tokyo’s next move will be now that the lawsuit is stayed while the company attempts to reorganize.