THQ and JAKKS Pacific are in the process of arbitrating the royalty rate to be paid by THQ to JAKKS Pacific for WWE video game sales under the THQ/JAKKS Pacific joint venture. Under the terms of the joint venture agreement, the royalty rate effective as of July 1, 2006 was to have been determined by agreement, or failing that, by arbitration. Following numerous delays by JAKKS Pacific, THQ filed an action in California Superior Court to compel arbitration and to appoint an arbitrator. After a trial judge appointed an arbitrator, JAKKS Pacific petitioned the California Court of Appeals to disqualify all but one of the potential arbitrators considered by the judge, based on its interpretation of when potential arbitrators were required to complete disclosure questionnaires. The California Court of Appeals has now denied JAKKS Pacific’s petition, which will allow the arbitration process to move forward.
“Contrary to JAKKS Pacific’s statements that the arbitration process has been slowed for ‘a host of reasons,’ the sole cause of delay has been JAKKS,” said James M. Kennedy, THQ’s executive vice president, business and legal affairs. “We believed JAKKS’s position in its petition from the judge’s appointment of an arbitrator was wrong, and the Court of Appeals has now agreed. As we have stated since we filed suit to compel arbitration and appoint an arbitrator, we look forward to moving the arbitration process forward expeditiously, and we expect to prevail once an arbitrator has the opportunity to consider the facts in this matter.”
THQ also stated that certain statements made by JAKKS Pacific during its conference call of February 20, 2008, regarding the economics of the video game joint venture and expectations for future WWE video game sales, do not reflect the views of THQ or the THQ/JAKKS Pacific joint venture. Under the joint venture operating agreement, THQ is the party responsible for the operations of the THQ/JAKKS joint venture. JAKKS Pacific is not currently actively involved in joint venture operations. Accordingly, JAKKS Pacific’s statements regarding the economics of the joint venture and expectations of future joint venture performance are not based on any active involvement in the business operations of the joint venture.
“The WWE is a tremendous brand and we have consistently grown this franchise in the video game space on a global basis, with life-to-date sales of more than $1 billion,” said Brian Farrell, THQ president and CEO. “We are excited about the continuing potential of this brand.”