Upper Deck Sues Itself

SAN DIEGO (CN) - Upper Deck International, a Netherlands-based trading card company, sued its California-based subsidiary, claiming The Upper Deck Co. counterfeited a popular Japanese trading card game, costing the corporation millions of dollars in legal fees, lost sales and damaged reputation.

The Yu-Gi-Oh! trading card game was developed from a fictional game in a Japanese manga created by Kazuki Takahashi. The Yu-Gi-Oh! franchise includes several animated features and video games.

Most incarnations feature a trading card game called Duel Monsters, in which players fight mock battles with fantasy monsters.

In its federal complaint, Upper Deck International (UDI) claims that in September 2006 it signed an agreement with Konami Digital Entertainment, manufacturer of the Yu-Gi-Oh! trading card game, to serve as exclusive distributor of the game throughout Europe and South Africa.

At about the same time, the Upper Deck Co., (UDC) based in the San Diego suburb of Carlsbad, signed a similar agreement to serve as exclusive distributor of the game in the United States, Canada, Guam, and Central and South America, according to the complaint.

UDI says it asked its Carlsbad subsidiary firm to serve as its subcontractor in Europe. At the time, defendant Richard McWilliam, head of the U.S. firm, sat on UDI's board of directors.

The deal turned sour in 2008. UDI claims: "In or about the first half of 2008, defendants orchestrated a scheme to produce and distribute counterfeit Yu-Gi-Oh! trading cards that UDC was not authorized to produce or distribute under the Yu-Gi-Oh! America contract."

UDI claims that it and its officers - except for McWilliam - were "wholly unaware of and in now way complicit in defendants' scheme."

The complaint adds: "Upon discovery of defendants' counterfeiting scheme, Konami Digital Entertainment Inc., promptly terminated the Yu-Gi-Oh! America contract."

Konami also sued UDC and others, in Los Angeles Federal Court, and invoked a "domino clause," terminating the Yu-Gi-Oh! Contract for Europe, UDI says.

UDI says that McWilliam denied any wrongdoing, which prompted UDI to fight the contract termination.

Only after UDI had spent millions on legal fees did McWilliam change his story and admit that the counterfeiting had occurred, UDI says.

"Later, defendants also admitted their counterfeiting scheme to Konami Digital Entertainment Inc., and its European affiliate KDE thereafter refused to fulfill millions of dollars in orders placed by UDI or to return the funds advanced by UDI to secure those orders," the complaint states.

By then, both branches of Upper Deck were negotiating with Konami to try to settle the Konami complaint before trial. UDI claims that its American branch was "unable to fund the settlement amount demanded by KDE," so it asked its corporate parent, UDI, to loan it $1 million to do so. "UDI, at all times having been led to believe by defendants and reasonably believing that any settlement of the U.S. KDE legal action would also include a settlement of the Europe KDE legal action, agreed to loan UDC $1 million to help fund a settlement," according to the complaint.

The complaint adds: "Unbeknownst toe UDI, however, the settlement that defendants negotiated and agreed to did not resolve the Europe KDE legal action. Instead, McWilliam and UDC disregarded and misrepresented UDI's interests in negotiating settlement of the U.S. KDE legal action. Indeed, at one point during those negotiations, again unbeknownst to UDI, defendants falsely misrepresented during negotiations that UDI was not interested in resolving the Europe KDE legal action as part of settlement of the U.S. KDE legal action. At or around the same time, defendants represented to UDI that Konami was not interested in a worldwide settlement. UDI only discovered that the settlement did not resolve the Europe KDE legal action and learned of defendants' misrepresentations regarding UDI's supposed lack of interest in resolving the Europe KDE legal action after defendants convinced UDI to loan Upper Deck California and Upper Deck Nevada $1 million, and after defendants executed the settlement agreements with Konami Digital Electronics, Inc."

UDI adds that since the U.S. settlement with KDE did not settle the complaint about Europe, "KDE was left free to continue to take aggressive legal action against UDI in Europe. KDI did exactly that: it continued to pursue significant monetary relief, including a claim for $64 million in damages against UDI and its CEO Nico Blauw for KDE's alleged damages it claimed to have suffered as a result of the discovery of defendants' unlawful counterfeiting scheme and testimonies. KDE also levied and encumbered significant assets of UDI and UDI's CEO.

"As a result of defendants' unlawful counterfeiting scheme and their later disregard and misrepresentation of UDI's interest during settlement negotiations that led to settlement of the U.S. KDE legal action, UDI's business has been significant and severely damaged."

UDI claims the losses forced it to fire more than 100 employees and close its offices in the United Kingdom, France, Spain, Italy and Australia.

It claims Upper Deck Co. severely damaged its corporate parent's reputation - and never repaid the $1 million loan either.

UDI seeks punitive damages for breach of contact, intentional interference with contractual relations, intentional and negligent interference with prospective economic advantage, breach of fiduciary duty and aiding and abetting breach of fiduciary duty

It is represented by Andrew D. Skale with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo of San Diego.

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