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A lawsuit brought against WWE by the Florida based Figures Toy Company (FTC) alleges that the company tried to terminate their long-standing deal with FTC to license and create replicas of the different WWE championship belts in order to instead make a deal with a China-based manufacturer.
FTC, who approached WWE in 2000 about licensing and selling the replica belts, signed a new agreement with WWE in 2010, which was amended in 2012. As part of their deal, WWE would license the replicas to FTC for FTC to sell themselves to retailers. WWE would also purchase replicas of the different titles to sell themselves at live events and online.
In a 14 page filing, FTC claimed that on 8/8, WWE informed them that they were terminating the deal, alleging that FTC had a "pattern of repeated failure to make timely delivery of sufficient quantities of the Licensed Products to customers or retailers." Since FTC had allegedly done so, they had hurt the royalties that WWE could make off the replica belts, which retail anywhere starting at $249 on up to $750, depending on the belt and the level of replica that it is.
In the lawsuit, FTC is placing the blame on a new buyer working for WWE, June Jack, who they believe has worked for other toy companies and has a knowledge of "working directly with Chinese manufacturers." FTC's claim that Jack communicated to them numerous times during dealings that she was unhappy about the 2012 Amendment the company had signed with FTC before she came on board and felt that WWE could get a better deal elsewhere from a Chinese manufacturer that they could obtain the replicas from at a lower price point.
FTC then alleged that Jack devised "pre-texts" to put WWE in a position where they could eliminate FTC and "steal the license" for the belts back for themselves.
There were several issues that set the termination into motion, according to FTC's lawsuit filing. We will break them down:
SPINNER BELT REPLICA ISSUES
In the lawsuit, FTC claimed they had been informed that WWE was removing the "spinner" from its storylines and off TV, so they lowered the amount they kept in stock, claiming that once a belt was removed from TV, it's sales "drastically" dropped. WWE then ordered 100 of the belts to be sold at their house shows in September 2012 - a month after FTC was informed the "spinner" was removed from TV. FTC informed WWE that they did not have a large amount of stock on hand and would fill the order ASAP.
FTC claims they explained to WWE that they did not have the belts at hand because WWE had told them the "spinner" was being retired the month before, so FTC had allowed their stock to "draft down." FTC claimed that WWE understood that they had placed FTC in that position. FTC claimed they delivered 50 of the belts in December 2012 and another 50 belts in January 2013.
FTC also alleges that on 11/14/12, they informed WWE that they had not placed their usual order for the holiday shopping season. WWE then placed a massive order with a number of items, including 100 "spinner" belts. FTC claims to have filled all other aspects of the order but again informed WWE that they had a low stock on the "spinners" and would fill the order ASAP. With the exception of the "Spinner" belts, the remainder of the order was filmed the same day and FTC had the "spinner belts" flown to WWE at FTC's expense by 12/17/12.
WWE cited late delivery of the "Spinner" belts as one of the reasons for termination, according to FTC. FTC claims that WWE had purchased additional items from FTC in 2013 and never once voiced any issues about the shipping issues.
CURRENT CHAMPIONSHIP BELT ISSUES
There were also issues with WWE placing a large order of the "current" WWE title belt, which FTC explained is a very hard, intricate design that features over 100 jewels that have to be hand-placed during replica production.
WWE placed their first orders for the new replica belts, according to FTC, in January 2013 and they were delivered without any issues.
On 2/26/13, WWE then placed an over for over 1,000 replicas of the current championship belt, which FTC noted was three times the amount of any order ever previously made by WWE for any replica title belt.
In the lawsuit, FTC wrote, "FTC notified WWE that this type of unexpected, unplanned demand for the championship belt would place tremendous pressure on FTC’s Chinese manufacturer, but that it would use its best efforts to deliver the products. FTC delivered these products on or about March 21, 2013. Because of the unprecedented magnitude of the order, which was both unplanned and unexpected, there were some quality issues with the belts that were delivered in March 2013. FTC used its best efforts to acclimate to handling this unprecedented volume of orders for a handmade piece that required the placement by hand of more than 100 different jewels."
WWE placed additional orders in April 2013 and Jack informed FTC in May that each championship belt now needed to be inspected for "quality", which had never been required in the 13 years that WWE and FTC had worked together.
FTC alleged the inspections were, "Based on subjective determinations made by WWE staff - applying alleged standards of “defectiveness” never provided to FTC and never applied in the past – WWE rejected some of the belts that were delivered in May and June 2013. Many of these rejections were not in good faith and were merely a pre-text to make a claim for termination."
FTC claimed that by August of this year, they had not only resolved any issues with deliveries but had also resolved any quality issues for the "Current" championship belt replica, even under the newer, harsher WWE quality standards that were now being enforced.
FTC claimed that on 8/7, they reached out to Jack about the most recent "current" WWE championship belt replicas that had been delivered. Jack, according to FTC, said all but one had passed their inspection and that "additional orders would be forthcoming." FTC claims she did not voice any issues with FTC's product at that time.
FTC then noted that WWE claimed the issues with the quality of the "Current" championship replicas was one of the reasons they Terminated FTC.
WWE'S TERMINATION OF THE AGREEMENT
On 8/8 (the day after FTC spoke with Jack and was allegedly told there would be more orders coming), WWE informed them that they were terminating their Licensing contract to produce the Replica belts.
Prior to that day, FTC alleges that WWE never informed them this was a possibility or that they felt there "was a pattern of failure to make timely delivery" or that FTC had a "adverse effect on the WWE Licensing program", which WWE claimed in their Termination notice.
FTC is also claiming that WWE is attempting to terminate the deal by citing issues FTC had delivering to "its customers or retailers" but WWE would not fall under either category, therefore they have no legal right to terminate the agreement. It's not spelled out in the lawsuit, but it would appear FTC is claiming that since WWE is the Licensor, they cannot also be considered a customer legally. [Note from Mike: If that is indeed the case, it looks to be a stretch. If WWE was purchasing material, they were a customer.]
FTC also alleges that WWE's Jack "placed additional orders for millions of dollars" worth of Licensed Product, knowing she planned to Terminate the Agreement with FTC. FTC allege that Jack did this knowing that the manufacturing process had already begun, allowing WWE to put themselves into a position where they could now scoop up the items for a quarter of the cost for the latter part of 2013.
FTC noted that the end of their WWE licensing deal means they will have to let employees go and "suffer significant damages" as well as suffer "irreparable repair" of their goodwill and reputation within the industry. They also noted that WWE has already enforced that third-party retailers advertising in their magazine can no longer advertise FTC-produced items, hurting FTC's customer base.
FTC also alleges that WWE has met with the Chinese manufacturer of FTC's replica belts and intends to just purchase the FTC-Licensed belts directly from the manufacturer, cutting out the Licensing costs and keeping a far larger profit for WWE. They claim that would be in direct violation of their Agreement with WWE. They are also claiming WWE has caused "Torturous Interference" with their business
In the lawsuit, FTC wrote, "An actual controversy has arisen and now exists concerning the termination of the Agreement. WWE has purported to terminate the Agreement, and asserts that FTC may not continue to manufacture or sell the Licensed Products. FTC contends that the purported termination is ineffective because no grounds for termination exist under the Agreement, and that WWE is breaching the Agreement by attempting to manufacture and sell Licensed Products for which it has granted to FTC an exclusive license, and by notifying FTC’s customers that they may no longer advertise FTC’s licensed products."
FTC has petitioned the court for a Jury Trial, that the court rule there is no basis for WWE to Terminate their agreement, that the court issue an injunction preventing WWE from interfering with the agreement (including ordering vendors not to advertise FTC products in WWE's publications), that the current Agreement remain in full force and that WWE pay damages for the entire situation.
The court ruled that FTC has until 10/27 to file an amended pleading.
WWE has until 11/28 to file any motions to dismiss the case.
WWE has not yet responded to the lawsuit, which given that it was filed 48 hours ago, is not surprising.
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