Facts

Space Race, LLC is a New York limited liability company that developed and produces Space Racers, which is an animated children's television show that airs on Universal Kids. In July 2017, Space Race entered into a four-year toy license with Funrise, Inc. Funrise is a toy company based in Los Angeles. The Space Racers license agreement granted Funrise the exclusive worldwide right to manufacture, market, advertise and sell Space Racers toys. According to the license agreement, Funrise was obligated to use its "commercially reasonable efforts" to manufacture and sell Space Racers toys "to meet the reasonably anticipated demand." Funrise designed a line of Space Racers toys and pitched the line to major retailers, including Toys R Us. Toys R Us was interested in placing orders for Space Racers toys, but it went out of business before any purchase orders were placed. Given the lack of retail demand, Space Race demanded that Funrise manufacture Space Racers toys so that Space Racers could directly sell the toys through the Amazon Exclusives platform. Funrise's position was that Space Racers could not be a direct seller under the toy license.

As Funrise was considering its options in revamping the toy line for other potential retailers, Space Race filed for arbitration. Space Race asserted claims against Funrise for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud. Space Race sought a total of $26,985,000 in damages for outstanding minimum guarantees, lost royalties, punitive damages, attorneys fees, and recovery of other expenses.

Around the time that Space Race filed for arbitration, Space Race contracted with a third party to manufacture Space Race toys. Space Race then sold those toys on the Amazon Exclusives platform.

PETITIONER'S CONTENTIONS: Space Race contended that Funrise anticipatorily repudiated (and therefore breached) the license agreement by refusing to manufacture toys for Space Race to sell directly on Amazon Exclusives. Space Race also contended that Funrise did not use commercially reasonable efforts to manufacture and sell the toys. Space Race also contented that Funrise fraudulently induced it into entering the license agreement.

RESPONDENT'S CONTENTIONS: Funrise contended that it took commercially reasonable efforts by developing the line, preparing samples for pitches to major retailers, participating in international toy fairs, and attempting to "sell in" the line in accordance with other toy licensing customs. Funrise further contended that, pursuant to the license agreement, it was not obligated to manufacture toys for Space Race to sell directly on Amazon. Additionally, Funrise contended that Space Race breached the license agreement by violating the exclusivity clause because Space Race contracted with a third party to manufacture toys for sale on Amazon Exclusives.

Result

The AAA Tribunal denied Space Race's claims, in their entirety. The AAA Tribunal determined that Funrise used commercially reasonable efforts to sell the Space Racers line to retailers. The AAA Tribunal also determined that it was not commercially reasonable for Funrise to manufacture toys for potential sale on Amazon because there was not sufficient demand for Space Racers toys on Amazon to justify the high manufacturing costs. The AAA tribunal found that Funrise was not obligated to manufacture toys for Space Race to directly sell on Amazon. Additionally, the AAA Tribunal determined that Space Race repudiated the license agreement when it contracted with a third party to manufacture toys for sale on Amazon. The AAA Tribunal also found Funrise did not fraudulently induce Space Race to enter the license agreement.

Other Information

The AAA Tribunal awarded Funrise $884,521 in attorneys' fees and costs, $180,602.45 for amounts previously advanced to the AAA, and $240,822.13 in expert fees. The AAA Tribunal ruled that Funrise was entitled to recover its expert fees as it made a California Code of Civil Procedure section 998 offer of compromise in the amount of $275,000 and Space Race recovered nothing by way of this action. The total of the attorneys' fees and costs and expert fees totaled $1,305,945.58. The AAA Tribunal offset the total amount awarded to Funrise by $240,875.50, which represents attorneys' fees and costs incurred by Space Race as a result of discovery remediation efforts. Accordingly, the Panel awarded Funrise a total of $1,065,070.08. ARBITRATORS: John Jay McCauley; Paul E. Burns; Rebecca Callahan.

Length

10 days