THQ 2009 Annual Report Download - page 100

Court granted the defendants’ motion to dismiss claims under the Robinson-Patman Act and the Sherman
Act. On December 21, 2007, the Court dismissed the remaining federal claims, based on the RICO Act,
and denied a motion by WWE to reconsider the Court’s prior March 2006 order dismissing the antitrust
claims. The Court also dismissed WWE’s state law claims, without prejudice to refiling them in state court,
for lack of federal jurisdiction. WWE has now asserted its state law claims in Connecticut, as described
below. The Court has also granted our motion to dismiss without prejudice our cross-appeals in this action.
WWE appealed the Court’s rulings, and a hearing on the appeal was held before the United States Court
of Appeal for the Second Circuit on May 6, 2009. On May 19, 2009, the Court of Appeals affirmed the
Court’s dismissal of the WWE’s claims.
WWE Connecticut State Court Action. On October 12, 2006, WWE filed a separate lawsuit against us and
the LLC in the Superior Court of the State of Connecticut, alleging that the Company’s agreements with
Yuke’s Co., Ltd. (‘‘Yuke’s’’), a developer and distributor in Japan, violated a provision of the WWE
videogame license prohibiting sublicenses without WWE’s prior written consent. The lawsuit seeks, among
other things, a declaration that the WWE is entitled to terminate the video game license and seek
monetary damages. At a hearing on May 8, 2007, the Court granted WWE’s request to amend its pleadings
to add allegations and claims substantially similar to those already pending in WWE’s lawsuit in the
Southern District of New York and to ‘‘cite in’’ the other defendants from that action, including our CEO,
Brian Farrell. Following the dismissal without prejudice of WWE’s lawsuit in the Southern District of New
York, WWE sought leave to refile its state law claims in this action, which was granted. As a result, the
claims by WWE in Connecticut represented a combination of the earlier claims relating to the Yuke’s
agreements and the Connecticut equivalents of the state law claims that had previously been pending in
the Southern District of New York. On August 29, 2008, the Court granted motions for summary judgment
filed by us and other defendants, dismissing the claims that were Connecticut equivalents of the claims
previously pending in the Southern District of New York. The Court subsequently denied a request by
WWE to rehear arguments related to this decision. We have now filed an answer to the remaining claims
in this action. Discovery is scheduled to be completed by June 2009, and the case is currently scheduled to
be ready for trial by May 1, 2010. WWE has filed a motion for summary judgment on the claims related to
Yuke’s, and we and the LLC have cross-moved for summary judgment on those same claims. These
motions have been continued by the Court until after the close of discovery. On July 1, 2008, we filed a
cross-complaint in this action against JAKKS alleging that, if WWE’s allegations are found to be true, then
JAKKS breached its contractual, fiduciary and other duties to us.
We intend to vigorously defend ourselves against the claims raised in this action, including those raised in
the amended complaint. We also intend to vigorously pursue our cross-claims against JAKKS. However, at
this time we cannot estimate a possible loss, if any, from an adverse decision in this case. Games we
develop based upon our WWE videogame license have contributed to approximately 23% of our net sales
in fiscal 2009, down compared with approximately 25% of our net sales in fiscal 2008, and up compared
with approximately 15% of our net sales in fiscal 2007. The loss of the WWE license would have a negative
impact on our future financial results.
Operating Agreement with JAKKS Pacific, Inc.
JAKKS Preferred Return Arbitration. In June 1999 we entered into an operating agreement with JAKKS
that governs our relationship with respect to the WWE videogame license. Pursuant to the terms of this
agreement, JAKKS is entitled to a preferred payment from revenues derived from exploitation of the
WWE videogame license. The amount of the preferred payment to JAKKS for the period beginning July 1,
2006 and ending December 31, 2009 (the ‘‘First Subsequent Distribution Period’’) is to be determined by
agreement or, failing that, by arbitration. The parties were unable to reach agreement on the preferred
payment for the First Subsequent Distribution Period. Accordingly, as provided in the operating
agreement, an arbitration hearing was held before the arbitrator on March 20, 2009. We are currently
awaiting the arbitrator’s decision. Although we believe continuation of the previous preferred payment
93