Are you ready for the truth? This is why Konami had to 'step in'.

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Are you ready for the truth? This is why Konami had to 'step in'.

Post  Itachi Uchiha on Sat Jan 24, 2009 5:08 am

From Pojo.biz;

*IMPORTANT NOTE*: If you don't like reading, scroll down to the TLDR section.

When I first returned to the game right after SJC Detroit, the news of litigation between Upper Deck (UD) and Konami had just come out. I quickly scoured the legal databases for references to this case, filed in Nevada, and soon got all of the public details of the case. I then wrote an article that I sent to Pojo, which was not published because of possible legal ramifications. Here are a few excerpts:

********** EXCERPT FROM FORMER JK 10 ***********
"UDE entered an agreement with Konami to distribute YGO exclusively from 2003 to 2006. Then, they renewed the agreement again from January 2007 to December 2010. This latter agreement was NOT a formal contract, but was rather a letter of intent to establish good faith efforts at deeper negotiations."

"UDE alleges that Konami has

1. failed to reasonably provide adjustments to the product (this probably refers to card design, ban lists, SJC prize support)
2. never intended to enter a formal distribution agreement with UDE despite making UDE believe so
3. unreasonably withheld certain promotional activities (such as a website to sell YGO that UDE had already designed)
4. failed to cooperate against piraters of YGO product
5. never took UDE's suggestions to Shueisha or Kazuki Takashi

I have omitted a lot of the other irrelevant legal jargon."
******END EXCERPT*****

Many of the assumptions taken by this article turned out to be wrong (thank God it wasn't published!). UD actually took a courageous (or so we thought) stand to save the game. Shonen Jumps were continued, and TO's were alerted to continue to be on notice.

At this time, the conduct of Konami raised two HUGE questions in my mind:

1) What would make them jump the gun and revoke the contract, when only a scant year remained until the natural expiration of the contract.
2) What justification would they have for just flagrantly breaching this contract? (Big bad company from Japan who doesn't understand US laws does not work AT ALL-- Konami is represented by U.S lawyers and understands corporate contracts fully).

Well now, my friends, the question has been answered. Allow me to unearth a bombshell in the U.D vs Konami matter...

There is currently pending litigation in California courts between Konami and a company called Vintage, which produced rare Yu-Gi-Oh cards that were then sold to Toys R Us and other stores. These rare YGO cards were counterfeits, and Konami then found that the counterfeits were supplied by Upper Deck. Here is the reason (according to Konami's own words) why they terminated their contract with Upper Deck.

*** Transcript of Konami's own words from legal counsel ***
"Konami Digital Entertainment, Inc. is the manufacturer of and rights holder to the highly
popular Yu-Gi-Oh! Trading Card Game. Konami retained The Upper Deck Company, a well-
known distributor of sports memorabilia, baseball cards and trading card products, based on
Upper Deck’s reputation for guaranteeing the authenticity of the goods it distributes.
Unbeknownst to Konami, Upper Deck has been distributing counterfeit copies of the same
Yu-Gi-Oh! products that Upper Deck holds itself out to the public as protecting. This lawsuit is
an anticipatory “counterstrike” filed by Upper Deck as part of its effort to coerce Konami into a
settlement, and to prevent the disclosure of Upper Deck’s role in an earlier-filed action pending in
the Central District of California, Konami Digital Entertainment, Inc. v. Vintage Sports Cards,
(the “Vintage litigation”)."

Konami first became aware of the counterfeiting activities at issue in summer 2008, when
it identified counterfeit “Rare Cards” from Yu-Gi-Oh! TCG being sold by Vintage Sports Cards
(“Vintage”) to Toys R Us stores in California. Konami filed the
Vintage litigation on October 8, 2008, and obtained a temporary restraining order and the right to
take expedited discovery to identify the source of the counterfeit goods and the extent of the
infringing activities. That discovery revealed that Upper Deck was the
source of the counterfeit goods: Upper Deck provided 531,240 counterfeit Yu-Gi-Oh! TCG cards
to Vintage via thinly documented shipments in 2007 and 2008. The
counterfeit cards were provided at no cost to Vintage, for Vintage’s use in re-packaged
Yu-Gi-Oh! TCG products.

On October 22, 2008, Upper Deck’s lawyers contacted Konami, stating that they had
heard “‘rumors’ to the effect that Konami was getting ready to sue Upper Deck” Rather than denying its role in the counterfeiting activities, Upper Deck threatened Konami
with “mutual assured destruction” if Konami made public Upper Deck’s role in the distribution of
counterfeit goods. Upper Deck urged that the parties arrange
immediately a “summit meeting” of their principals.

On October 30, 2008, Konami notified Upper Deck that it needed a full explanation of the
counterfeiting activities — and confirmation that Upper Deck would abide by the terms of the
preliminary injunction — prior to deciding whether Upper Deck’s requested “summit meeting”
made sense. Upper Deck agreed to abide by the terms of the preliminary
injunction. Despite repeated requests, however, Upper Deck has
refused to provide a substantive response to Konami’s requests for information concerning the
manufacturer of the cards and scope of the counterfeiting activities.

Rather than answering Konami’s October 30 letter, Upper Deck demanded to inspect the
counterfeit cards and to obtain informal discovery of everything Konami already knew about
Upper Deck’s activities. Even after inspecting the counterfeit cards and
obtaining copies of key documents produced by Vintage, Upper Deck refused to provide any
information regarding the counterfeiting activities.

On November 10, 2008, Konami issued a subpoena to Upper Deck requiring the
production of documents and testimony concerning the subjects identified in Konami’s letter of
October 30. In addition to its subpoena, Konami demanded pursuant to the LOI’s audit provision to
inspect and copy Upper Deck’s books and records relating to Yu-Gi-Oh! TCG. Upper Deck refused Konami meaningful access to its records, and it produced no
documents relating to the 531,240 counterfeit cards shipped to Vintage.
Konami notified Vintage on December 1 that it intended to amend the complaint (to include Upper Deck) and the
parties stipulated to a 10-day extension of time for Vintage to respond.

On December 10, 2008, two days prior to the due date for Konami’s amended complaint,
Upper Deck filed the complaint in this action and emailed it to Konami with a note offering to
stand down if “if Konami immediately agrees to an agreement to stay all actions and a meeting
with the principals . . . .” On December 11, 2008, Konami provided notice that the LOI had terminated as a result of Upper Deck’s counterfeiting activities and filed and served its First Amended Complaint,
identifying Upper Deck as a defendant.

Despite notice of the LOI’s termination and the terms of the preliminary injunction in the
Vintage litigation, Upper Deck continues to use Konami’s trademarks on its website and to hold
itself out falsely as the “trademark rights holder” to Yu-Gi-Oh! TCG.
**** end transcript of Konami's allegations ****

On January 11, 2009, Yumi Hoashi (VP of Cards Division of Konami, basically the head of YGO for Konami) submitted a reply declaration (or written testimony) under penalty of perjury affirming Konami's allegations.

The cards she had examined were parts of the packages sold by Vintage. There were photographed examinations of authentic cards and the counterfeits at the end (the cards in question were Elemental Hero Aqua Neos, Elemental Hero Flame Wingman, Destiny Hero Dreadmaster, Water Dragon, and five Mcdonald's promotional cards sold by Vintage to Toys R Us, allegedly supplied by Upper Deck [as counterfeits]).

Excerpts:
"Konami, not UD, is the manufacturer of
authentic YGO TCG cards. With the exception
of certain promotional cards (not at issue
here), Konami never authorized the printing of
individual cards for distribution by UD, and UD
was not authorized to "manufacture" any cards.

... the variant or "Rare Cards" found in the Vintage
packages being sold in Toys R Us stores were recognizable
as counterfeit cards based on a visual inspection of the
cards."


TLDR PORTION

MY TAKE: If this stuff is true (I have not posted this stuff as "the truth," it is merely Konami's version........ I don't think ANY company would condone their distributor creating counterfeit copies of cards to make a quick buck.

SUMMARY: According to Konami, Konami terminated the agreement between UD and Konami because it discovered Upper Deck was counterfeiting certain holos and releasing them to other companies, such as Vintage, that would then sell the cards to retail outlets such as Toys R Us.

When confronted with this, Upper Deck threatened Konami with litigation and "mutually assured destruction" unless Konami would agree to a meeting between the heads of both divisions of trading cards.

Upper Deck's lawsuit against Konami was filed AFTER Upper Deck discovered Konami was about to name Upper Deck, including it in its own lawsuit versus Vintage Cards.

SOURCES: All of the sources here are taken verbatim from public record court filings and briefs. I have not made up anything in this post, and it is all verifiable by PDF files.

TO THE MODERATORS: I don't know which one of you moved the original Well topic, but this information is some of the most important in the history of YGO's future and you would do well not to lock or delete it without talking to PojoBill, lest you want to be demodded.

NONE of it is conjecture. All of it is taken verbatim from Konami's legal counsel and the court records.

ALSO: This post does not reflect any of my own ideas or opinions regarding UD vs Konami. It does not attempt to imply or suggest that Konami's reasons are right, or that UD did something wrong. All it does is offer Konami's reason why the distribution agreement was terminated.

IN CLOSING: I just want to clarify that Konami is in no way implying UDE manufactured a bunch of counterfeit cards. The cards at issue here are,

Elemental Hero Wingman, Elemental Hero Aqua Neos, Water Dragon, Destiny Hero Dreadmaster, and five McDonald's Promo cards.

These cards were (allegedly) manufactured and sold by Upper Deck to Vintage, a company that then dealt with Toys R Us and put these cards into the shops. There were about 500,000 copies of these cards sold.

When Konami alleges counterfeiting, it simply means anyone other than they (the true manufacturer) made the card.
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Itachi Uchiha

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