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About Rainier

PC gamer, WorthPlaying EIC, globe-trotting couch potato, patriot, '80s headbanger, movie watcher, music lover, foodie and man in black -- squirrel!

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Court Rules in Favor of THQ in WWE Royalty Dispute

by Rainier on July 27, 2009 @ 12:46 p.m. PDT

For years now THQ and JAKKS Pacific have been in the process of arbitrating the royalty rate to be paid by THQ to JAKKS Pacific for WWE video game sales, and after various lawsuits, arbitrators have decided that JAKKS is to receive a preferred return payment at a rate of 6% of net sales, rather than the 10% rate it request.

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.

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.

JAKKS Pacific announced that an arbitration with THQ over the rate of JAKKS’ preferred return payment from WWE video game sales generated by the THQ/JAKKS joint venture for the period July 1, 2006 through December 31, 2009, has resulted in a determination by the arbitrator that JAKKS is entitled to receive a preferred return payment at a rate of 6% of net sales of the WWE video games sold by the joint venture, rather than the 10% rate that had been accrued by JAKKS and THQ pending the arbitrator’s decision. The arbitration award requires THQ to pay JAKKS approximately $34 million on account of the preferred return for the period from July 1, 2006 through March 31, 2009. As a result of the decision, JAKKS will reduce its receivable from THQ from approximately $57 million to approximately $34 million and take a non-cash charge of approximately $22.5 million in the second quarter.

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