TV Tokyo Corp. v. 4Kids Entertainment, Inc. (In re 4Kids Entertainment, Inc.)

POST-TRIAL FINDINGS OF FACT AND CONCLUSIONS OF LAW

SHELLEY C. CHAPMAN, Bankruptcy Judge.

TABLE OF CONTENTS

PARTIES AND PROCEDURAL HISTORY.619

FINDINGS OF FACT.621

I. Background.622

A. The Licensor Parties and the Yu-Gi-Oh! Brand.622

B. The Yu-Gi-Oh! License Agreements.622

1. The Short Form Agreement.622

2. The 2001 Agreement.623

3. The 2008 Agreement.623

4. The Gross Income Provision .623

II.4Kids’ Activities Under the Yu-Gi-Oh! License Agreements.625

III. ADK’s Royalty Audit of 4Kids.625

IV. ADK’s Plan to Start its Own U.S. Home Video Business.627

Final Audit Findings . V. The

Finding No. 1: Funimation Service Fees. A.

1. 4Kids’ Decision to Start 4Kids Home Video .

2. The Negotiation of the Home Video Rights in the 2001 Agreement.

3. The Parties’ Understanding of Paragraph 1(b) of the 2001 Agreement.

4. The 4Kids-Funimation Agreements.

a. The Funimation Distribution Agreement.

b. The Funimation Services Agreement.

e. Execution of the Funimation Agreements.

d. Disclosure of the Funimation Services Agreement and Fees.

5. 4Kids’ Home Video Subsidiary.

6. The Revision of Paragraph l(b)(iii) in the 2008 Agreement.

Finding No. 2: Majeseo Service Fees. td

1. Background of the 4Kids-Majesco Relationship.

2. The Majeseo Services Agreement.

Finding No. 3: International Withholding Taxes . O

1. Withholding Taxes Generally.

2. Treatment of Withholding Taxes under the License Agreements.

3. Mr. Elliott’s Audit Finding.

4. Expert Testimony Regarding Japanese Tax Law .

5. There Is No Credible Evidence That ADK Ever Requested Foreign Tax Withholding Certificates from 4Kids Prior to the Audit.

6. There Is No Evidence That ADK Suffered Any Tax Related Injury.

Finding No. 4: Post-.June 2008 Home Video Revenue.

Finding No. 5: Costs of Third-Party Audits.

Finding No. 6: Errors & Omissions Insurance Allocation.

1. 4Kids’Methods.

2. Mr. Elliott’s Method.

Finding No. 7: Bank Charges . d

Finding No. 8: Miscellaneous Costs . K

Finding No. 9: Material & Courier Costs. i

*618 VI. ADK’s Purported Termination of the 2008 Agreement.664

A. The 2008 Agreement’s Termination Provision.664

B. Mr. Elliott’s Preliminary Audit Findings.664

C. The Parties’ June 2010 Correspondence.665

1. ADK’s June 17, 2010 Letter.665

2. ADK’s June 25, 2010 Letter.666

3. 4Kids’ June 29, 2010 Response .666

D. The Parties’ December 2010 Correspondence.667

1. ADK’s December 20, 2010 Letters.667

2. 4Kids’ December 29,2010 Responses.668

E. The Parties’ 2011 Negotiations.669

1. Adaptation Agreement.670

2. Mr. Sugimoto’s “Inadvertent” March 9, 2011 Email .672

3. 4Kids’ $1 Million Good-Faith Payment.673

4. The March 18, 2011 Meeting.673

5. 4Kids’ Efforts to Continue Negotiations to Resolve the Audit Claims.674

F. The March 25,2011 Purported Termination.675

G. Balance Owed to 4Kids at the Time of Termination.676

EVIDENTIARY MATTERS .676

I. Admissibility of Expert Testimony.676

A. Plaintiffs’ Motion in Limine to Exclude the Expert Report and Testimony

of Takaaki Tokuhiro.677

B. 4Kids’ Motion in Limine to Exclude the Testimony of Robert Freedman

and Arthur Erk.678

II. Evidentiary Issues Regarding the Translation of Documents.679

III. Other Evidentiary Objections.681

I. Applicable Law Oí oo

II.Licensor’s Purported Termination of the 2008 Agreement was Ineffective Because Licensor Failed to Provide 4Kids with Adequate Formal Written Notice of Breach. Oí OO co

A. ADK’s June 17, 2010 Letter. Oí OO en

B. ADK’s June 25, 2010 Letter. Oí OO en

C. ADK’s December 20, 2010 Letters. Oí OO en

D. ADK’s March 4, 2011 Letter. Oí CO -3

E. Mr. Sugimoto’s “Inadvertent” March 9, 2011 Email. Oí OO oo

F. Ongoing Negotiations Continued Between the Parties Without a Final Opportunity to Cure. oo oo eo

III.The Amount Owed by 4Kids, if Any, Was Not the $4.8 Million Claimed in the Purported Notice of Breach, Which Renders the Notice Materially Defective and Renders the Termination Ineffective. Oí 00 CO

A. Finding No. 9: Material & Courier Costs — $247,771.88. Oí eo H*

B. Finding No. 8: Miscellaneous Costs — $43,554.59. Oí so to

C. Finding No. 7: Bank Charges — $4,270.58. Oí so to

D. Finding No. 6: Errors & Omissions Insurance Allocation — $67,328.45 .... Oí <£> to

E. Finding No. 5: Unauthorized Audit Fee Deduction — $105,111.20 . Oí ZD CO

F. Finding No. 4: Unreported Post-June 2008 Home Video Revenue — $26,894.27 . Oí CO ^

G. Finding No. 3: Unsubstantiated International Withholding Taxes — $2,265,767.16 . 695

*619 1. 4Kids Provided Evidence of Withholding Tax Deductions Required by

the License Agreements.695

2. Licensor Has Demonstrated No Tax Injury.698

3. Even If ADK Suffered a Tax Injury, It Cannot Recover From 4Kids Due to Its Own Inaction.699

H. Findings No. 1 and No. 2: Unreported Funimation Home Video Revenue-$1,967,000.00 and Unreported Majesco Home Video Revenue-$91,666.50. 700

1. 4Kids Exercised the Home Video Rights Itself Pursuant to Paragraph l(b)(iii) of the License Agreements and Earned Service Fees from its Distributors for Separate Services Rendered ..701

a. Licensor’s Mischaracterization of 4Kids’ Duties under the License Agreements.702

b. Licensor’s Arguments that Funimation Was the Licensee Because It (i) Was Manufacturing, Distributing, and Selling Home Videos and (ii) Bore the “Inventory Risk” Do Not Withstand Scrutiny.702

c. Licensor’s “Secrecy Clause” Argument Has No Basis.704

2. Paragraph l(b)(iii) of the License Agreements and the Misunderstanding Regarding Such Provision.705

IV. Other Arguments Presented by Plaintiffs.707

CONCLUSION.708

Since 2001, defendant 4Kids Entertainment, Inc. (“4Kids” or the “Debtor”) has brought the immensely popular Yu-Gi-Oh! anime series to children of all ages in the United States and abroad. As licensee of the brand from plaintiffs NAS, TV Tokyo, and ADK (each as defined below), the Japanese consortium that controls the Yu-Gi-Oh! rights (the “Consortium”), 4Kids generated over $150 million in revenue between 2001 and 2009, which it shared with its licensor pursuant to the contractual arrangements between them. But sometime in 2009, for reasons that remain unclear, the relationship soured. The Consortium decided to conduct an audit of the royalties paid by 4Kids to the Consortium. Both 4Kids and the Consortium were troubled by the auditor’s findings that there was allegedly a $4.8 million royalty underpayment. Over the course of many months, there ensued a series of increasingly heated letters, emails, and meetings between the parties and their counsel that failed to resolve the royalty issues. Like characters in the Yu-Gi-Oh series itself, 4Kids and the Consortium were locked in a high stakes duel over the future of the series in the Western world and, by extension, the survival of 4Kids as a going concern.

On March 24, 2011, the Consortium attempted to end the duel by issuing a letter that purports to terminate its licensing agreement with 4Kids. Days later, 4Kids sought chapter 11 protection and asserted that the termination letter was ineffective. Whether or not the termination letter was effective is the core issue in this adversary proceeding. For the reasons set forth extensively below, the Court finds that the Amended and Restated Yu-Gi-Oh! Agreement dated and effective as of July 1, 2008 (the “2008 Agreement”) was not effectively terminated and, accordingly, it remains an executory contract that is the property of the 4Kids estate.

PARTIES AND PROCEDURAL HISTORY

Plaintiff and Counterclaim-Defendant TV Tokyo Corporation (“TV Tokyo”) owns and operates a television station in Japan. *620 Counterclaim-Defendant ASATSU-DK Inc. (“ADK”) is a large Japanese advertising company. Plaintiff and Counterclaim-Defendant Nihon Ad Systems (“NAS”) is ADK’s wholly-owned subsidiary. Defendant and Counterclaim-Plaintiff 4Kids Entertainment Inc. is a children’s entertainment company that produces children’s television programming and licenses merchandise that relates to such programming, including, for example, home videos, toys, and trading cards.

On March 24, 2011, Plaintiffs TV Tokyo and NAS commenced an action against 4Kids in the United States District Court for the Southern District of New York (the “District Court”), alleging fraud and breaches of contract and of the covenant of good faith and fair dealing, and seeking monetary damages, an accounting, and fees and costs allegedly arising pursuant to the license agreements among the parties (the “Adversary Proceeding”). (See TV Tokyo Corporation v. 4Kids Entertainment, Inc., Case No. 11-cv-02069 (RJH), Docket No. 1). On April 6, 2011, 4Kids commenced with this Court a voluntary case pursuant to chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On May 23, 2011, the District Court entered an order referring the Adversary Proceeding to this Court. (See TV Tokyo Corporation v. 4Kids Entertainment, Inc., Case No. 11-cv-02069 (RJH), Docket No. 6). This is a core proceeding pursuant to 28 U.S.C. section 157 (b)(2). 2

On June 2, 2011, this Court entered its Agreed Order Setting Trial Schedule, which bifurcated the Adversary Proceeding into two phases (the “June 2 Order”). According to the June 2 Order, the initial phase of the Adversary Proceeding is:

solely for the purposes of determining (a) whether Plaintiffs’ purported termination of 4Kids’ rights under the Yu-Gi-Oh! license was effective and (b) whether the amounts owing to Plaintiffs, if any, under the audit claims in paragraph 16 of the Complaint exceed the credits claimed by 4Kids for amounts paid or advanced to or on behalf of the Plaintiffs.

(Case No. 11-11607, Docket No. 180 at 2; Adv. Pro. No. 11-02225, Docket No. 2 at 2). On June 10, 2011, 4Kids filed its Answer and Counterclaims in the Adversary Proceeding. See Adv. Pro. No. 11-02225, Docket No. 3. On July 21, 2011, Plaintiffs filed their Answer to 4Kids’ Counterclaims. See Adv. Pro. No. 11-02225, Docket No. 14. Commencing on August 29, 2011, the Court conducted a trial with respect to the first phase of the Adversary Proceeding. The trial concluded on September 23, 2011, after over seventy hours of testimony and argument.

Prior to the commencement of the trial, the parties filed declarations in lieu of direct testimony for each of the fact witnesses who testified during the trial. On behalf of Plaintiffs, the following witnesses submitted declarations and provided live testimony 3 at trial: (a) Yoshihiko Shinoda, *621 Director of the Content Division of ADK, and the Managing Director of NAS; 4 (b) Shu Hosaka, Department Director of the Global Licensing Department, in the Content Division of ADK; 5 (c) Haruhiko Sugi-moto, Senior Vice President of ADK America, Inc., a subsidiary of ADK; 6 (d) Yukio Kawasaki, General Manager of the animation division of TV Tokyo since 2011; 7 and (e) Anthony Elliott, Plaintiffs’ royalty auditor. On behalf of Defendant, the following fact witnesses submitted dec: larations and provided live testimony at trial: (a) Samuel Newborn, Executive Vice President, Business Affairs and General Counsel of 4Kids; 8 (b) Bruce Foster, Chief Financial Officer and Executive Vice President of 4Kids; 9 (c) Rosalind Nowicki, Executive Vice President, Global Marketing and Licensing of 4Kids; 10 and (d) Jacqueline Kozmata, Senior Royalty Manager at 4Kids. 11 The parties also designated the deposition transcripts of Alfred Kahn, 4Kids’ former Chief Executive Officer and Chairman, and Noriko Kubota, an ADK employee in the overseas licensing group.

At trial, live expert testimony on behalf of Plaintiffs was provided by Takashi Kasai, Arthur Erk, and Robert Freedman, each of whom also submitted expert reports prior to trial. Defendant presented live expert testimony of Takaaki Tokuhiro at trial and submitted an expert report for Mr. Tokuhiro prior to trial.

On October 12, 2011, after the conclusion of the trial, each of the parties filed with the Court (a) proposed findings of fact and conclusions of law and (b) post-trial briefs. See Adv. Pro. No. 11-02225, Docket Nos. 58, 59, 61, 62.

FINDINGS OF FACT

The following constitute this Court’s findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. Having *622 considered the voluminous evidence, testimonial and documentary, including all exhibits admitted into evidence, as well as Plaintiffs’ and Defendant’s post-trial proposed findings of fact and briefs, and mindful that a court should not blindly accept findings of fact and conclusions of law proffered by the parties (see St. Clare’s Hosp. and Health Ctr. v. Ins. Co. of North Am., (In re St. Clare’s Hosp. and Health Ctr.), 934 F.2d 15 (2d Cir.1991) (citing United States v. El Paso Natural Gas Co., 376 U.S. 651, 656 , 84 S.Ct. 1044 , 12 L.Ed.2d 12 (1964))), and having conducted an independent analysis of the law and the facts, the Court makes the following Findings of Fact and Conclusions of Law: 12

I.Background

A. The Licensor Parties and the Yu-Gi-Oh! Brand

1. The Yu-Gi-Oh! series is an animated television series based on a Japanese comic book series, also known as a “man-ga.” The manga is published by Shueisha, Inc. (“Shueisha”), while the rights to the animated series are owned by NAS and TV Tokyo. The Yu-Gi-Oh! series currently consists of Yu-Gi-Oh! Duel Monsters, Yu-Gi-Oh! GX, Yu-Gi-Oh! 5D’s, and Yu-Gi-Oh! ZeXal (collectively “Yu-Gi-Oh!”).

2. The ‘Yu-Gi-Oh! Consortium” or the “Consortium” refers to the group of Japanese businesses that have interests in the Yu-Gi-Oh! property. In the narrowest sense, the Consortium includes only TV Tokyo and NAS. However, the “Consortium” at times refers to all of the Japanese companies with an interest in Yu-Gi-Oh!, including TV Tokyo, NAS, ADK, Shueisha, and Konami. (Hosaka Decl. ¶ 2 and n.2).

3. Besides Yu-Gi-Oh!, ADK licenses more than twenty other programs outside of Japan. Although NAS and TV Tokyo own and control the rights to the Yu-Gi-Oh! series, ADK has responsibility for the day-to-day management of Yu-Gi-Oh! on behalf of NAS and TV Tokyo. (Shinoda Decl. ¶ 5).

4. Konami Corporation (“Konami”) is the worldwide licensee for Yu-Gi-Oh! trading cards.

B. The Yu-Gi-Oh! License Agreements

5. Yu-Gi-Oh! was first broadcast in Japan in or about April 2000, and, due to the success of the program in Japan, Plaintiffs decided to look into broadcasting Yu-Gi-Oh! overseas. In or around the fall of 2000, Plaintiffs began interviewing potential licensees in the United States. (Kawasaki Decl. ¶ 6). Plaintiffs ultimately chose to hire 4Kids as their licensee to promote, market, and broadcast the Yu-Gi-Oh! series.

1. The Short Form Agreement

6. The licensor-licensee relationship between (i) NAS and TV Tokyo (together, “Licensor”) and (ii) 4Kids was originally set forth in a deal memo titled Yu-Gi-Oh! Duel Monsters Deal Memo and signed on April 18, 2001 (the “Short Form Agreement”), pursuant to which NAS and TV Tokyo licensed to 4Kids certain exclusive rights to the Yu-Gi-Oh! series throughout the world outside Asia (the “4Kids Territory”). (Ex. T — 1; Kawasaki Decl. ¶ 10; Newborn Decl. ¶ 6).

*623 7. The Short Form Agreement provided that the parties intended to enter into a longer agreement, but until that agreement was signed, the Short Form Agreement would “constitute the binding obligation of the parties.” (Ex. T-l). Among the rights granted to 4Kids by the Short Form Agreement were the rights to “exploit or license” the television broadcast rights and the home video rights with respect to the Yu-Gi-Oh! series. (Ex. T-l ¶¶ 4,10; Newborn Decl. ¶ 6).

2. The 2001 Agreement

8. Beginning in October 2001, the parties began negotiating a long-form agreement to replace the Short Form Agreement. In June 2003, the parties signed a long-form Yu-Gi-Oh! Agreement (the “2001 Agreement”) that superseded and replaced the Short Form Agreement. (Ex. T-6; Newborn Decl. ¶7; Hosaka Decl. ¶ 6; Shinoda Decl. ¶ 6). The 2001 Agreement, though signed in June 2008, was dated and effective “as of’ April 18, 2001, the date of the Short Form Agreement. Among other things, the 2001 Agreement required 4Kids to secure a television broadcast commitment for Yu-Gi-Oh! in the U.S. for the Yu-Gi-Oh! television series, to pay to Licensor half of 4Kids’s Gross Income (as defined in the 2001 Agreement) from the license of the certain rights in the 4Kids Territory, and to guarantee Licensor certain minimum royalties on merchandising rights. (Ex. T-6; Newborn Decl. ¶ 7).

3. The 2008 Agreement

9. In 2007, the parties began discussing an extension of the 2001 Agreement, which was scheduled to expire on August 31, 2010. These discussions culminated in the execution by 4Kids and Licensor in October 2008 of the 2008 Agreement (together with the 2001 Agreement, the “License Agreements”).

10. The rights granted to 4Kids under the License Agreements included the authority to exercise “[t]he Television Broadcast Rights, Home Video Rights, Merchandising Rights, advertising and promotion rights, publishing rights and [certain] Other Rights to the Property” (collectively, the “YGO Rights”). (License Agreements ¶¶ l(i) at Ex. T-6 & Ex. T-ll).

11. Among other things, the 2008 Agreement confirmed 4Kids’ existing television broadcast rights, home video rights and merchandise licensing rights to the Yu-Gi-Oh! property, added the Yu-Gi-Oh! 5D’s series to the agreement, clarified that 4Kids had the option to license any new Yu-Gi-Oh! “spinoff’ series, and modified various other terms of the license. In addition, the 2008 Agreement extended the term of the Yu-Gi-Oh! license to 2015 and provided for additional one-year extensions for every additional season of Yu-Gi-Oh! television episodes licensed by 4Kids from Licensor. (Ex. T-ll; Newborn Decl. ¶ 8). Paragraph 4(g) of the 2008 Agreement is identical to Paragraph 4(g) of the 2001 Agreement.

4.The Gross Income Provision

12. The License Agreements generally provide that the Gross Income — defined in relevant part as “the gross receipts received from the exploitation or license of the Rights to [Yu-Gi-Oh!] in the [4Kids] Territory” — shall be split evenly between the parties. 4Kids is generally permitted to deduct three categories of expenses from Licensor’s share of the Gross Income: (1) expenses for maintaining Yu-Gi-Oh! trademarks and copyrights in the 4Kids Territory; (2) errors and omissions insurance premiums, up to $15,000 per year; and (3) withholding taxes required by law to be deducted. (Ex. T-6 ¶¶ 4(c), 4(d); Ex. T-ll ¶¶ 4(c), 4(d)).

13. Specifically, the Gross Income Provision is set forth in Paragraphs 4(c) and *624 4(d) of the License Agreements. (Ex. T-6 and Ex. T-ll at ¶¶ 4(c), 4(d)).

14. The Gross Income Provision of the 2001 Agreement defined “Gross Income” as:

the gross receipts received from the exploitation or license of the [YGO] Rights to the Property in the Territory (but not including any advertising revenues should 4Kids broadcast the Episodes in the United States on any network block controlled by 4Kids, including the Fox Network during the Saturday morning kids block (“Fox Block”)).

(Ex. T-6 at ¶ 4(c) at T-6.)

15. The definition of “Gross Income” 13 was amended in the 2008 Agreement, primarily to exclude advertising revenues from 4Kids’ websites:

the gross receipts received from the exploitation or license of the [YGO] Rights to the Property in the Territory (but not including any advertising revenues should 4Kids broadcast the Episodes in the United States on any network, broadcast outlet or distribution channel controlled or programmed by 4Kids in the Territory, including, without limitation, the Fox Network during the Saturday morning kids block (“Fox Block”) and The CW Network (collectively, “4Kids Controlled Broadcast”)). Gross Income shall also not include advertising revenues from 4Kids Websites unless otherwise agreed by the parties pursuant to Paragraph l(a)(iii) above.

(Ex. T-ll ¶ 4(c)(iii) at T-ll).

16. The Gross Income Provision provides that, in return for the right to exploit the YGO Rights, 4Kids was required to pay the YGO Consortium a portion of the Gross Income received from exploitation of those rights. Specifically, Paragraph 4(c) of the License Agreements, provides, in relevant part, that:

4Kids shall pay Licensor fifty percent (50%) of the Gross Income ... received by 4Kids from the exploitation or license of the [YGO] Rights less the actual third party out-of-pocket expenses incurred by 4Kids for copyright and trademark registrations for the Property in the Territory (collectively “IP Expenses”), insurance expenses pursuant to Paragraph 13 (“Insurance Expenses”) (with Licensor’s share of the 4Kids Errors and Omissions Insurance premiums computed on pro-rata basis with other television series and movies insured under such insurance policy but in no event shall the cost to licensor exceed $15,000 per year) and withholding taxes required by law to be deducted as provided in Paragraph 4(g) (“Taxes”), which IP Expenses, Insurance Expenses and Taxes shall be deducted by 4Kids from Licensor’s share of the Gross Income.

(Ex. T-6 & Ex. T-ll at ¶¶ 4(c)).

17. Paragraph 4(d) of the License Agreements provided that all other ex *625 penses, including “all expenses with respect to the adaption, dubbing, and res-coring of the Series, the advertising and marketing of the Series and the exploitation of the Television Broadcast Rights, Home Video Rights, Merchandising Rights, publishing rights and promotion rights to the Series” were to be paid “from 4Kids’ share of the Gross Income.” (Id. at ¶ ¶ 4(d)(iii).)

II. 4Kids’ Activities under the Yu-Gi-Oh! License Agreements

18. Prior to 4Kids’ licensing of Yu-Gi-Oh!, the series was virtually unknown in the 4Kids Territory. Beginning in 2001, 4Kids licensed the television broadcast rights to Yu-Gi-Oh! in the United States and Europe pursuant to the grant of rights from Licensor to 4Kids under the Short Form Agreement (later superseded by the 2001 Agreement). (Newborn Decl. ¶ 9).

19. Since launching the Yu-Gi-Oh! series in the United States in 2001 and in Europe in 2002, 4Kids has, among other things, (a) produced the English-language adaptation of over 500 Yu-Gi-Oh! episodes for broadcast in the 4Kids Territory; (b) licensed Yu-Gi-Oh! television broadcast rights to KidsWB!, which during the early years of the 2000’s was the highest rated children’s television network in the United States on Saturday mornings; (c) obtained a broadcast commitment from KidsWB! in June 2001 for the Yu-Gi-Oh! series in exchange for paying KidsWB! between 10% and 20% of 4Kids’ share of advances and royalties from the license of various Rights to Yu-Gi-Oh! in the U.S. and Europe; (d) licensed master toy rights to Yu-Gi-Oh! to Mattel in 2001; and (e) licensed promotional rights to Yu-Gi-Oh! to McDonald’s for a system-wide “Big Kids Meal” promotion in the U.S. in from December 20, 2002 through January 20, 2003. (Newborn Deel. ¶ 10).

20. As a result of the ultimately successful launch of the Yu-Gi-Oh! property in the United States, 4Kids has licensed various rights to the Yu-Gi-Oh! property to hundreds of sublicensees in the 4Kids Territory. Yu-Gi-Oh! licensees have sold several billion dollars of Yu-Gi-Oh!-relat-ed products at retail in the 4Kids Territory over the past 10 years. From 2001 to 2010, Licensor received in excess of $150 million in royalties from sales of Yu-Gi-Oh! — related merchandise, trading cards and videogames, and from the license of Yu-Gi-Oh! television broadcast and home video rights in the 4Kids Territory. (Newborn Deck ¶ 14). Of that amount, approximately $75 million came directly from 4Kids. (9/12/2011 Tr. 10:14-23 (Newborn)).

21. The Yu-Gi-Oh! license and resulting revenue are a key part of 4Eads’ business. During 2009 and 2010, the Yu-Gi-Oh! property represented a substantial share of 4Kids’ annual revenue, in the range of 40%. Many of 4Kids’ employees are primarily involved in the ongoing adaptation and distribution of the Yu-Gi-Oh! series and related licensing and marketing efforts. (Newborn Deck ¶ 15).

III. ADK’s Royalty Audit of 4Kids

22. Both the 2001 Agreement and the 2008 Agreement contain a provision allowing Licensor to audit the books and records of 4Kids:

Audit. Licensor shall have the right to audit the books and records of 4Kids insofar as they relate to the exploitation of the Rights to the Property. Any such audit shall take place during regular business hours upon not less than ten (10) days written notice. Licensor shall pay the cost of the audit; provided, however, that if any audit reveals an underpayment by 4Kids of more than five (5%) percent of the amount due Li- *626 censor, and 4Kids shall reimburse Li-censor for the reasonable cost of such audit. Any underpayment reflected in the audit shall be paid to Licensor promptly.

(Ex. T-6 ¶ 4(f); Ex. T-ll ¶ 4(f)).

23. Royalty inspections are common in the licensing and entertainment industry in the United States, but are not common in Japan. (Elliott Decl. ¶¶ 5-6; Kawasaki Decl. ¶ 33, Sugimoto Decl. ¶ 10; Hosaka Decl. ¶ 53; 9/15/11 Tr. 58:24-59:4 (Now-icki); 9/6/11 Tr. 102:12-16 (Hosaka); Ex. T-210 (e-mail between 4Kids’ consultant Enna Hozumi and EVP Nowicki, noting that “Japanese companies do not routinely conduct audits” and Plaintiffs’ confirmation that Plaintiffs “rely on 4Kids,” in context of licensee/sublicensee audits)).

24. Mr. Sugimoto testified that he raised the idea of auditing 4Kids in 2003 and again around 2007-2008, and that an audit was ultimately approved by Mr. Ho-saka in July 2009. (Sugimoto Decl. ¶¶ 9-11). According to Mr. Hosaka, ADK decided to conduct the audit because of its concern at the time for 4Kids’ financial position following the global financial contraction. (Hosaka Decl. ¶ 14; Shinoda Decl. ¶ 21). This is flatly inconsistent with what Mr. Hosaka and Mr. Shinoda told 4Kids in January 2010; as reflected in both an email from Mr. Hosaka to A1 Kahn dated January 13, 2010, as well as an attached letter from Mr. Shinoda to A1 Kahn dated January 14, 2009[sic], the stated reason for the audit was the implementation of “J-SOX” in Japan. See Ex. T-43. ADK thus appears to have misled 4Kids about the purpose of the audit, and apparently has made misrepresentations to the Court on this issue.

25. In January 2010, ADK engaged Anthony Curtis Elliott to conduct a royalty audit of 4Kids. Mr. Elliott has been a CPA since 1985, and is currently licensed as a CPA in California and New York. (Elliott Decl. ¶¶ 4, 8).

26. Royalty auditors such as Mr. Elliott conduct inspections to verify that the audited party conformed to the requirements of the applicable agreement when remitting payments, and paid the licensor or other counterparty the proper amount under the terms of the agreement. (9/9/11 Tr. 8:8-ll(Erk)). Although Mr. Elliott testified that he presents himself as being “objective,” he acknowledged that the use of the word “audit” is a misnomer. Indeed, Mr. Elliott’s email signature block contains the slogan “Royalty Audits = Cash Recoveries.” See, e.g., Ex T-52, p. 3.

27. On January 12, 2010, after an initial review of 4Kids’ quarterly royalty statements, also referred to as “participation statements,” Mr. Elliott drafted a proposal in which he recommended a three-stage audit “to determine whether the [royalties paid by 4Kids] were computed in accordance with the financial provisions of the [Licensing] Agreements.” (Elliott Decl. ¶4; Ex. T-90). The first phase would cover the parties’ relationship since 2001, and examine 4Kids’ royalty payments with respect to the U.S. and Canadian merchandising rights and home video rights, and 4Kids’ contractual deductions. (Elliott Decl. ¶ 10; see also Ex. T-12; Ex. T-509.)

28. On January 13, 2010, ADK notified 4Kids that it had engaged Mr. Elliott to conduct an audit of the books and records of 4Kids. (Ex. T-43). Mr. Elliott sent 4Kids requests for documents and information relevant to the Audit dated February 10, March 19, April 2, April 30, and July 9, 2010, with additional requests in October 2010. (Elliott Decl. ¶ 12; Ex. T— 12 at TVT-NAS 0065598; Ex. T-509; Ex. T-500; Ex. T-611.)

29. On May 21, 2010, Mr. Elliott issued a set of preliminary audit findings, along *627 with various inquiries regarding those findings, to Mr. Sugimoto of ADK. (Ex. T-12). The report presented seven preliminary audit findings valued by Mr. Elliott at approximately $7.3 million. The preliminary report contained the following statement in bold font:

The above audit findings are tentative. Some of these variances represent possible contract breaches.... In order to proceed with this inspection, the Accountant requests direction and final determination from ADK regarding the contractual interpretation of Paragraphs 1(b) and 4 of the [Licensing] Agreements ....

(Ex. T-12 at 2).

30. Over the next several months, Mr. Elliott continued work on the audit. During that time, he drafted three other interim reports dated October 11, October 18, and November 11, 2010. (Ex. T-13; Ex. T-93; Ex. T-94). Mr. Elliott’s final audit report was sent to Mr. Sugimoto on November 17, 2010. (Ex. T-14).

31. During the course of the audit, Li-censor retained legal counsel in the United States that was referred to Licensor by Mr. Elliott, and with whom Mr. Elliott had previously worked. Based on his preliminary audit findings, Mr. Elliott had recommended that ADK retain legal counsel. (Elliott Decl. ¶ 14; Sugimoto Decl. ¶ 16; Ex. T-12 at TVT_NAS 0065599). Mr. Elliott communicated with Licensor’s counsel roughly a dozen times concerning the audit, and drafts of his audit reports were shared with Licensor’s counsel. (8/29/2011 Tr. 229:19-231:6 (Elliott); Elliott Decl. ¶ 14).

32. Mr. Elliott received approximately $100,000 in compensation from ADK for conducting the 4Kids audit. (8/29/2011 Tr. 231:15-232:4 (Elliott)).

IV. ADK’s Plan to Start Its Own U.S. Home Video Business

33. The evidence presented at trial and summarized below shows that, while the audit was ongoing, ADK was planning to replace 4Kids as merchandise licensing agent and licensee of the Yu-Gi-Oh television and home video rights.

34. On August 5, 2010, Mr. Hosaka sent an email to various persons within ADK. The email was tagged as “High” importance and “Internal use only,” and included the notation “(Confidential!)” in the subject line. In the body of the email, under the heading “Current and future policies towards 4Kids,” Mr. Hosaka described the ongoing audit. He wrote:

At present, our company’s position is to keep step with TX and Konami and at least “Not irritate 4kids, but have them make progress on the decision for broadcasts from September in the U.S. and Europe by the middle of August so there is no disturbance to sales of cards, as well as make the release of the movie possible”.

Our company is currently in the process of establishing a new company in the U.S. to independently and directly conduct operations once the decision is not made and the movie cannot be completed (including termination of the contract due to breach of contract).

Mr. Hosaka also stated that he was “in the middle of taking concrete action” on the transfer. He stated that the information must “remain strictly confidential” and should not be shared with any other party, including Shueisha, or even other divisions within ADK. (Ex. T-422; Ex. T-422A). 14

*628 35. Also in evidence is a slide deck, dated August 25, 2010, titled “Current Status of 4kids and Countermeasures Hereafter.” The document, written in English, was created by ADK’s Global Licensing Department. One slide asks whether it is “possible to resume daily work without 4Kids,” noting that ADK would “be able to receive the Konami allocation,” referring to the 5% fee on Yu-Gi-Oh! trading cards and video games that Konami pays to 4Kids. (Ex. T-60; Newborn Decl. ¶ 183).

V. The Final Audit Findings

36. Mr. Elliott’s final audit report contained nine audit findings (collectively, the “Findings”), which he summarized as follows:

Finding 1 $1,967,000.00 Unreported Funimation Home Video Revenue

Finding 2 91,666.50 Unreported Majesco Home Video Revenue

Finding 3 2,265,767.16 Unsubstantiated International Withholding Taxes

Finding 4 26,894.27 Unreported Post June 2008 Home Video Revenue

Finding 5 105,111.20 Unauthorized Audit Fee Deduction

Finding 6 67,328.45 Unauthorized E & O Insurance Cost

Finding 7 4,270.58 Unauthorized Bank Charges

Finding 8 43,554.59 Other Unauthorized Deductions

Finding 9 247,771.88 $4,819,354.63 Other Recovery — Material and Courier Cost Total

(Ex. T-14 at 3; Elliott Decl. ¶ 16). Each of these Findings, and the record evidence pertinent to each, are discussed below.

A. Finding No. 1: Funimation Service Fees

37. In his first Finding, Mr. Elliott suggested that 4Kids had improperly withheld $1,967,000, representing Licensor’s share of service fees paid to 4Kids by its home video distributor, Funimation Productions, Ltd. (“Funimation”). Mr. Elliott suggested that these fees should have been included as part of “Gross Income” and split 50-50 between 4Kids and Licensor. (Ex. T-14 at 3-4; Elliott Decl. ¶¶ 17-23). Mr. Elliott’s calculation of $1,967,000 derived from the $3,934,000 in service fees received by 4Kids from Funimation, of which $1,967,000 was half. (Elliott Decl. ¶ 23).

1. 4Kids’ Decision to Start 4Kids Home Video

38. As stated above, under the Short Form Agreement signed in 2001, 4Kids was given the right to “exploit or license ... all forms of home video rights” in the Yu-Gi-Oh! series. (Ex. T-l ¶ 10). In early 2002, 4Kids began to discuss internally how it would use the home video rights to the Yu-Gi-Oh! television series to augment its other marketing initiatives. (Newborn Decl. ¶ 26).

39.At the time, the U.S. home video business was changing rapidly. The larger home video labels had begun focusing on releasing home videos of theatrical motion pictures rather than television series, which could be more easily taped off the air by means of more user-friendly VCRs and DVD players then hitting the market. 4Kids wanted to control the marketing and sale of Yu-Gi-Oh! home videos, the number of releases, the pricing of such releases, the advertising and marketing of such releases. (Newborn Decl. ¶ 37; Nowicki Decl. ¶ 14). For these reasons, 4Kids decided to exploit the Yu-Gi-Oh! home video *629 rights itself in the United States. (Newborn Decl. ¶¶ 26, 28, and 29).

2. The Negotiation of the Home Video Rights in the 2001 Agreement

40. The Short Form Agreement, which was in force at the time, provided that “4Kids shall pay Licensor 50% of the Net Series Income from the exploitation of the ... Home Video Rights[.]” (Ex. T-l ¶ 12). The “Net Series Income” was defined in relevant part as the “Gross Receipts from the license of the Broadcast Rights, Home Video Rights, and Manufacturing Rights to the Series[.]” (Id.) The Short Form Agreement did not explicitly provide any formula for compensating Li-censor in the event that 4Kids exploited the home video rights itself, as opposed to licensing them to a third party. (Id., Newborn Decl. ¶ 42).

41. In a series of meetings that took place on June 10, 2002 in New York, Mr. Shinoda of ADK and Mr. Kawasaki of TV Tokyo met with representatives of 4Kids to discuss the long-form 2001 Agreement that would ultimately replace the Short Form Agreement. (Newborn Decl. ¶¶ 43-44). During one meeting, Mr. Kahn told Mr. Shinoda that 4Kids would be releasing the Yu-Gi-Oh! home videos itself for the reasons set forth above. (9/1/2011 Tr. 33:23-34:7 (Shinoda); Newborn Decl. ¶ 43; 8/8/11 Dep. Tr. 62:23-63:24 (Kahn)). During another meeting, Mr. Newborn, along with other 4Kids employees, discussed with Mr. Shinoda and Mr. Kawasaki the compensation that would be paid to Li-censor if 4Kids exploited the home video rights itself through its new home video subsidiary. (Newborn Decl. ¶ 44).

42. During one of the meetings in June 2002, Mr. Shinoda and Mr. Kawasaki advised Mr. Newborn that they wanted to make certain that the royalty paid by 4Kids Home Video on Yu-Gi-Oh! home video sales in the United States was the market-rate royalty. (Newborn Decl. ¶ 45). Mr. Newborn suggested that a royalty of 20% of the wholesale price would be a market-rate royalty, and that by splitting the royalty between 4Kids and Licensor would put Licensor in the same position whether 4Kids exercised the home video rights itself or whether it licensed those rights to a third party. (Newborn Decl. ¶ 45; 8/8/11 Dep. Tr. 64:23-65:14 (Kahn)). 15 At trial, Mr. Shinoda testified that 20% was an appropriate royalty rate for a home video license in the 2002 time period. (8/30/2011 Tr. 126:2-7 (Shinoda)). Mr. Shinoda also testified that, at that time, 4Kids proposed that it would pay Plaintiffs 20% of the wholesale price as a royalty if 4Kids was going to serve as a licensee. (9/1/11 Tr. 35:22-36:8 (Shinoda)).

43. That week, Mr. Newborn drafted a new provision, Paragraph l(b)(iii), reflecting the discussions held on June 10, 2002 with respect to the home video royalty. (Newborn Decl. ¶ 47). Later that year, on three separate occasions — June 19, July 17, and December 9 — Mr. Newborn emailed redlined versions of the draft 2001 Agreement to representatives of ADK, each time showing the addition of Paragraph l(b)(iii) in bold and underlined type. (Newborn Decl. ¶¶ 48-50; Ex. T-4; Ex. T-5; Ex. T-50). Licensor never provided 4Kids with any comments on the substance of Paragraph l(b)(iii). (Newborn Decl. ¶ 50).

44. In June 2003, the parties signed the 2001 Agreement, which contained the new provision:

*630 If 4Kids exercises the Home Video Rights to the Episodes and any Additional Episodes itself, 4Kids shall pay Licensor a royalty of twenty percent (20%) of the wholesale selling price charged for the Home Video Devices. Such royalty payment shall be part of Gross Income and shall be divided among the parties as provided below in Paragraph 4.

(Ex. T-6 ¶ l(b)(iii); Newborn Decl. ¶ 51, Kawasaki Decl. ¶ 24, Shinoda Decl. ¶ 13). By the time the parties signed the 2001 Agreement, 4Kids Home Video had already released eight Yu-Gi-Oh! home video volumes in the U.S., each with the 4Kids Home Video logo featured prominently on the front and back cover and on the spine of the release. (Newborn Decl. ¶ 51).

3. The Parties’ Understanding of Paragraph 1(b) of the 2001 Agreement

45.Mr. Newborn, the drafter of the 2001 Agreement and of Paragraph l(b)(iii) in particular, testified that he understood the provision to mean that the royalty specified therein — 20% of the wholesale price of the home videos — would be the only income from the home videos that would be included in Gross Income. (Newborn Decl. ¶¶ 77-79).

46. Mr. Shinoda provided inconsistent explanations for his interpretation of Paragraph 1(b) of the 2001 Agreement. In Mr. Shinoda’s Declaration, he testified that: “It was my understanding that, if 4Kids licensed the Home Video Rights itself, it would be permitted to keep any profit that it was able to make after paying the YGO Consortium the appropriate percentage of the wholesale selling price of the home videos.” (Shinoda Decl. ¶ 15). When examined at trial, Mr. Shinoda testified that “[his] understanding ... was that the entire income was going to be split fifty/fifty,” and that he understood that the 20% royalty paid into Gross Income was only a minimum guarantee. At his deposition, Mr. Shinoda had testified that, with respect to the 80% of the wholesale selling price not paid as a royalty, his understanding was that Licensor would be entitled to half of any “profit that remains after subtracting, for example, manufacturing costs.” (8/30/2011 Tr. 133:7-16, 134:4-13, 137:23-138:3 (Shinoda); 9/1/2011 Tr. 34:8-36:8, 93:23-94:15 (Shinoda)). 16

4. The 4Kids — Funimation Agreements

a) The Funimation Distribution Agreement

47. Between February and May of 2002, 4Kids negotiated arrangements with Funimation with respect to the production, manufacture, distribution, and sale of home videos for Yu-Gi-Oh! and for three *631 other properties represented by 4Kids: Cabbage Patch Kids, Cubix, and Tama and Friends. (Newborn Decl. IT 30). These negotiations culminated in May 2002 with the signing of two agreements between 4Kids and Funimation (Newborn Decl. 1131).

48. First, 4Kids and Funimation entered into a distribution agreement (the “Funimation Distribution Agreement”) pursuant to which Funimation would duplicate and distribute the home videos for Yu-Gi-Oh! and three other properties represented by 4Kids. (Ex. T-35). Funimation also handled the billing and collecting of the home video revenue from sub-distributors, wholesalers, jobbers, and retailers because Funimation had direct relationships with many of these companies in the home video supply chain. (Newborn Decl. ¶ 33; 9/12/2011 Tr. 73:18-24, 79:24-80:21 (Newborn)). 4Kids announced that Funimation would be its “distributor” in a press release dated May 13, 2002, and in its quarterly SEC statements beginning in the second quarter of 2002. (Newborn Decl. ¶ 72, 57; T-2).

49. The Funimation Distribution Agreement provided for a 20% royalty on the wholesale selling price to be paid to 4Kids. (Ex. T-35 ¶ 3(b)). Between 2002 and 2008, Funimation remitted a total of $4,863,576.21 in royalties to 4Kids on Yu-Gi-Oh! home videos. There is no dispute that 4Kids split these royalties 50-50 with Licensor as provided for under the 2001 Agreement. (Newborn Decl. ¶ 34; Ex. T-6 ¶ l(b)(iii), Sugimoto Decl. ¶ 20; Elliott Decl. ¶ 17).

50. Licensors contend that the distribution agreement with Funimation effectively licensed to Funimation the home video rights to Yu-Gi-Oh!. However, in the home video business, it is common for home video companies to use outside vendors to physically manufacture and distribute the VHS tapes and DVDs. (Newborn Decl. ¶ 32; Ex. T-479). Similarly, licensees in general (including many other Yu-Gi-Oh! licensees) sometimes use third parties to handle the physical manufacture and distribution of licensed products. (Newborn Decl. ¶ 33). Mr. Shinoda testified that, in his view, in order to be the licensee, 4Kids does not necessarily need to own its own factory and physically reproduce the DVDs. (8/30/2011 Tr. 141:21-142:1 (Shinoda)).

51. The evidence shows that, while Fu-nimation was responsible for the physical manufacture and distribution of Yu-Gi-Oh! home videos, 4Kids retained control over issues normally controlled by a party exercising licensed rights. For example, 4Kids controlled what episodes to release on home video; what the final mastered versions of the episodes looked like; the number of episodes to release on each video; the timing of the home video releases; what materials the home videos contained in addition to the episodes themselves; and the appearance of the home videos’ packaging, consumer advertising, and marketing materials. (Newborn Decl. ¶ 37; Nowicki Decl. ¶ 14; 9/12/2011 Tr. 174:23-175:20 (Newborn)).

52. By contrast, when 4Kids licensed the home video rights to third parties in territories outside of the United States, it retained little control over the exercise of those rights. Mr. Newborn testified that the contracts generally required that the licensee put out one video every six months and that all packaging would be approved by 4Kids, but that otherwise 4Kids had “very little control” over foreign home video licensees. (9/12/2011 Tr. 174:6-20 (Newborn)).

53. Mr. Shinoda also testified that, in his view, in order to be the licensee, 4Kids should have been the entity which bore the inventory risk. (8/30/2011 Tr. 140:7-143:4 *632 (Shinoda)). But as between Konami, the worldwide licensee for Yu-Gi-Oh! trading cards, and its former distributor Upper Deck, Mr. Shinoda did not know which party held the inventory risk for unsold Yu-Gi-Oh! trading cards. In response to questioning from the Court, Mr. Shinoda testified that, as between a licensee and its distributor, it is not Licensor’s concern as to how the inventory risk is allocated, because royalties are paid when the products were initially shipped. (8/30/2011 Tr. 144:12-149:6 (Shinoda)) (“[The] royalty is applied to the amount shipped.... After that, whether that product will be sold to the distributor and how much will be sold, that is beyond our concern.”); see also 8/31/2011 Tr. 28:10-29:2 (Shinoda) (“What happens to the handling of inventory after the royalty has been paid, we’re not involved in that.”). 17

b) The Funimation Services Agreement

54.In addition to the Distribution Agreement with Funimation, 4Kids and Funimation entered into a services agreement (the “Funimation Services Agreement”), under which 4Kids Home Video would provide various production, advertising, and promotion services with respect to the home videos for the four properties, apart from and in addition to 4Kids’ obligations under the Funimation Distribution Agreement. (Ex. T-36; Newborn Decl. ¶ 31; 9/12/2011 Tr. 181:10-182:24 (Newborn)). Specifically, the Funimation Services Agreement provided that, in exchange for certain service fees, 4Kids would provide various services related to the production, marketing, packaging, and advertisement of the home videos. (Ex. T-36). For example, the Funimation Services Agreement required 4Kids to:

• “create advertising, marketing and promotional materials”

• “design the packaging”

• “design the point of sale materials”

• “create, prepare and place consumer advertising”

• “produce ... advertising teasers”

• “produce supplemental content” (¿e., DVD “extras”) and

• “deliver [the] DVD content as a DLT Master.”

(Ex. T-36 ¶¶ 3-4).

55. Pursuant to the Funimation Services Agreement, 4Kids Home Video (a) “authored” the VHS and DVD versions of the Yu-Gi-Oh! episodes; (b) delivered duplication-ready DVD content to Funimation; (c) produced DVD extras (additional scenes, Yu-Gi-Oh! trading card tips, Yu-Gi-Oh! music videos and other materials included in DVD versions of the Yu-Gi-Oh! home videos); (d) produced advertising and “teasers” to be viewed prior to the start of the Yu-Gi-Oh! episodes featuring Yu-Gi-Oh! merchandise, trading cards and other previously released Yu-Gi-Oh! home videos available for sale at retail; (e) designed the packaging and point of purchase materials; (f) met numerous times with retailers and wholesalers of Yu-Gi-Oh! home videos; and (g) organized various retail promotions to support sales of Yu-Gi-Oh! home videos and related merchandise. (Newborn Decl. ¶ 35; Nowicki Dec. ¶ 18).

56. In exchange for these services, Fu-nimation paid 4Kids a per-unit fee accord *633 ing to a schedule, based in part on the average monthly unit selling price of the home videos. (Ex. T-36 ¶¶ 1(a), 8(b)). The Funimation Services Agreement was amended in 2003 to provide for an additional supplemental service fee to be “paid in consideration of the additional marketing services performed and to be performed by 4Kids,” ranging from 1% to 4% of the net receipts on the Yu-Gi-Oh! home videos. (Ex. T-538 ¶ 8(d)). Between 2001 and 2009, Funimation paid a total of $3,934,458.26 in service fees to 4Kids. Mr. Elliott calculated that these fees were represented approximately 18% of the wholesale selling price of the home videos. (Ex. T-14 at 3-4; Ex. T-99; Elliott Deck ¶ 23).

57. Of the $3,934,458.26 in service fees paid by Funimation to 4Kids, $1,757,017.11 were paid in 2002 and 2003, and $951,597.42 in 2004. Thus, approximately $2,153,516.04 (of which Licensor claims to be owed $1,076,758.02) in service fees (the 2002 and 2003 totals plus five-twelfths of the 2004 total) were paid prior to June 1, 2004. (Ex. T-99).

58. Mr. Shinoda and Mr. Hosaka testified that, in their view, 4Kids was obligated under the License Agreements to provide services similar to those 4Kids agreed to provide in the Funimation Services Agreement. For example, they testified that, under Paragraph 1(e) of the License Agreements, 4Kids was granted marketing rights in the Yu-Gi-Oh! brand, which they compared to the advertising in the Funi-mation agreements. They also compared 4Kids’ obligation to develop a “style guide” to its duties under the Funimation Services Agreement to develop packaging for home videos. (Shinoda Deck ¶ 29; Hosaka Deck ¶ 28; Ex. T-6 ¶¶ 1(e), 7(d); Ex. T-ll ¶¶ 1(e), 7(d)).

59.On cross-examination, however, Mr. Shinoda admitted that developing a general “style guide” and developing packaging for specific home videos were different. (8/30/2011 Tr. 161:1-162:24 (Shinoda)). Neither Mr. Shinoda nor Mr. Hosaka 18 were unable to point to any provision of the License Agreements which required 4Kids, if it were simply licensing the home video rights to a third party, to (1) design DVD packaging; (2) design point-of-sale materials; (3) create, prepare and place consumer advertising; (4) produce advertising teasers; (5) produce DVD “extras”; or (6) deliver DLT Masters. Nor could they identify any foreign home video licensee for which 4Kids provided those services. (8/30/2011 Tr. 157:25-160:2, 171:19-173:21, 177:18-179:25 (Shinoda); 8/31/2011 Tr. 12:12-13:9 (Shi-noda); 9/6/2011 Tr. 19:10-20:25 (Hosaka)). Although on re-direct Mr. Shinoda identified provisions of the License Agreements that relate to advertising, those provisions relate to 4Kids’ “right” to advertise, not its obligation to advertise — much less an obligation to advertise home videos on behalf of a home video licensee. (9/1/2011 *634 Tr. 36:18-37:13 (Shinoda); Ex. T-ll ¶¶ l(a)(ii), 1(e)).

60. The parties introduced samples of license agreements between 4Kids and its foreign Yu-Gi-Oh! home video licensees. These agreements do not require 4Kids to provide the same services as it is required to provide under the Funimation Services Agreement. (Ex. T-136, Ex. T-137, Ex. T-138). This is confirmed by the testimony of Mr. Newborn and Ms. Nowicki, each of whom testified that 4Kids does not provide these services to its foreign home video licensees. (9/12/2011 Tr. 63:7-65:3 (Newborn); 9/15/2011 Tr. 112:2-115:5 (Nowicki)).

61. One of ADK’s experts, Robert Freedman, has written in a treatise relating to home video agreements in which he explains that, “unlike video cassettes, DVDs are often released with additional material,” such as “background material, biographies or interviews of some of the participants, some making of footage or other related material; all of which can be accessed by the view at the viewer’s dis cretion” — ie., what the parties have referred to as DVD “extras” or “supplemental DVD content.” Mr. Freedman further explains that the producer of a DVD “may negotiate to be engaged for a fee to create these ancillary materials” and that “[t]he distributor will likely will be willing to engage with the producer to perform these services if the parties can agree upon appropriate compensation.” Mr. Freedman testified that the distributor would engage the producer to create the ancillary materials because “the producer is the party that will have the greatest knowledge with respect to the content of the material.” (Ex. T-241; 9/9/2011 Tr. 167:10-170:1 (Freedman)).

e) Execution of the Funimation Agreements

62. Although the Funimation Distribution Agreement and the Funimation Services Agreement were both signed in early May 2002, they were dated as of March 1, 2002. (Ex. T-35; Ex. T-36; Newborn Deck ¶ 31). Mr. Newborn, the drafter of the Funimation agreements, testified that the reason he created two separate agreements was, in essence, to finish the Distribution Agreement (as to which there were few business issues to resolve) and to then focus on the Funimation Services Agreement while the parties were continuing to negotiate its basic business terms. Mr. Newborn testified that he was able to use an existing home video licensing agreement as a template for the Distribution Agreement, which was drafted while the businesspeople were still negotiating the details of what would become the Funimation Services Agreement, and that it was easiest to create two separate agreements rather than attempt to merge all issues in one agreement. (9/12/2011 Tr. 185:12-186:19 (Newborn)). Mr. Newborn’s explanation was credible, and there was no evidence to support Plaintiffs’ theory that the use of two separate agreements was to facilitate the inclusion of what they call the “Secrecy Clause” in the Funimation Services Agreement. See p. 147, infra.

63. Mr. Kahn, the former Chief Executive Officer of 4Kids, testified that he understood that the 20% royalty paid by Funimation on the wholesale price of the videos was for the content of the episodes, while the monies paid under the Funimation Services Agreement were for the additional services performed by 4Kids, such as advertising and promotion, that 4Kids would not provide had it licensed the home video rights to a third party. (8/8/11 Dep. Tr. 130:22-131:20, 132:20-136:19 (Kahn)).

64. The Funimation Services Agreement contains a confidentiality provision which provides, in part:

*635 Each party agrees to keep the terms and conditions of this Agreement strictly confidential and shall not disclose the terms and conditions of this Agreement to any third party. Notwithstanding the foregoing, each party may disclose the terms and conditions of this Agreement or portions thereof to such persons within such party’s company on a strict “need to know basis,” and to such party’s attorneys, accountants and professional advisors who need to know such information it being understood that (i) each such person shall be informed by the disclosing party of the confidential nature of the terms and conditions of this Agreement and shall be directed by the disclosing party to treat the terms and conditions this Agreement confidentially and not to use it other than for the purposes described above ...

(Ex. T-36, ¶ 13(b)). The Distribution Agreement does not contain a confidentiality provision. (Newborn Deck ¶ 75; 9/12/11 Tr. 86:1-3; T-35 (Newborn)).

65. The confidentiality provision contained in the Funimation Services Agreement was first used by 4Kids in a January 2002 contract with Fox Broadcasting Corporation, and has since been used in an October 2008 contract with The CW Network. (Newborn Dec. ¶¶ 70-71; Ex. T-341). Mr. Newborn testified that he added the “strict ‘need to know basis’ ” language to the confidentiality provision that he inserted into the Funimation Services Agreement. (9/12/11 Tr. 82:16-24 (Newborn)).

66. The confidentiality provision allowed 4Kids to make legally-required public disclosures. (Ex. T-36 ¶ 13(b); Newborn Deel. ¶ 69). Because 4Kids’ entry into the home video market was a material business development, 4Kids disclosed the creation of 4Kids Home Video in a press release dated May 13, 2002 — less than two weeks after signing the Funimation agreements. (Newborn Deck ¶ 72). The press release also announced that Funimation would serve as 4Kids’ home video distributor. {Id.; Ex. T-2). Mr. Sugimoto testified that he was aware of 4Kids’ May 2002 press release and was aware that Funimation was acting as 4Kids Home Video’s distributor. (Sugimoto Deck ¶20). Mr. Newborn testified that the primary aim of the confidentiality provision was to prevent disclosure of the Services Agreement before the press release on May 13, 2002. (9/12/11 Tr. 84:6-13) (Newborn).

67. The Services Agreement also included a merger clause. (T-36 at ¶ 14; 9/12/11 Tr. 88:3-15 (Newborn)). That provision provides:

Entire Understanding and Modification. This Agreement and the Distribution Agreement contain the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral and written understandings and agreements relating thereto. This Agreement may not be modified discharged or terminated orally.

(T-36, ¶ 14). The Distribution Agreement has no merger clause. (Ex. T-35). The Services Agreement refers to the Distribution Agreement in several places. (Ex. T-36 at ¶4(0), 5(a)(v), 9(c), 12(c), 12(d), 12(e) and 14). By contrast, the Distribution Agreement never mentions the Services Agreement. (See Ex. T-35).

d) Disclosure of the Funimation Services Agreement and Fees

68. Beginning in the second quarter of 2002, 4Kids disclosed in its quarterly and annual reports to the SEC (10-Qs and 10-Ks) both its distributor relationship with Funimation and the service fees payable to 4Kids. (Newborn Deck ¶ 57; Ex. T-243; Ex. T-244; Ex. T-245). For example, *636 4Kids’ Form 10-Q for the second quarter of 2002 stated that 4Kids Home Video “has entered into an agreement with its home video distributor Funimation pursuant to which [4Kids Home Video] is providing ongoing advertising, marketing and promotional services with respect to home video titles of Company represented properties distributed by Funimation. Funi-mation has paid the Company an advance against [4Kids Home Video’s] share of the distribution proceeds to be realized by [4Kids Home Video] from such titles.” (Ex. T-243). And in the 10-Q disclosure for the third quarter of 2003 noted that “4Kids Home Video entered into an agreement with an unaffiliated third party home video distributor (the Video Distributor’), pursuant to which 4Kids Home Video provides ongoing advertising, marketing and promotional services with respect to certain home video titles that are owned or controlled by the Company and which are distributed by the Video Distributor.” (Ex. T-245).

69. Ms. Jacqueline Kozmata of 4Kids, who was responsible for assembling the participation statements, testified that because these fees were not split with ADK, it was not 4Kids’ usual practice to include the service fees in the participation statements. (Kozmata Deck ¶ 9).

70. However, on at least three occasions, the Funimation service fees were disclosed on quarterly participation statements sent to ADK by 4Kids. (8/29/2011 Tr. 170:17-172:6 (Elliott); Ex. T-78; Ex. T-79; Ex. T-80; see also Ex. T-98; Elliott Decl. ¶ 19). As Mr. Elliott testified, anyone reviewing those statements would be able to see that Funimation was paying service fees to 4Kids, and that Licensor was not receiving a share of those fees. (8/29/2011 Tr. 168:7-172:6 (Elliott); 8/30/2011 Tr. 64:6-65:2 (Elliott); see Ex. T-78 at ACE11848; Ex. T-79 at ACE 12199-200).

71. Mr. Shinoda testified that, from 2002 until 2006 or 2007, the person at ADK responsible for reviewing the participation statements was Noriko Kubota. (8/31/2011 Tr. 36:17-20 (Shinoda); see also 9/6/2011 Tr. 28:2-12 (Hosaka)). Mr. Sugi-moto described Ms. Kubota as being “in charge of Yu-Gi-Oh!” during this time period. (9/8/2011 Tr. 24:10-17, 28:10-23 (Sugimoto)). Ms. Kubota testified that she would “quickly” review “simple areas” [sic] of the quarterly participation statements to check “whether the money and the amount deposited matched and whether the timelines were accurate,” and whether there were “new licensees or new television stations added.” She did not know whether anyone else at ADK had the responsibility for undertaking a more fulsome review of the statements. (8/22/11 Dep. Tr. 45:9-48:20 (Kubota)).

72. Mr. Elliott testified that he learned of the service fees through examining some of 4Kids’ quarterly participation statements. (8/29/2011 Tr. 167:8-168:2 (Elliott); Ex. T-98).

73. Before the Audit, Licensor did not know that 4Kids and Funimation had signed any agreements related to the Yu-Gi-Oh! property other than the Funimation Distribution Agreement, and 4Kids’ executives did not mention it. (Sugimoto Deck ¶¶ 15, 18; Shinoda Deck ¶ 38; Kawasaki Deck ¶ 42, 37; Hosaka Deck ¶ 40).

74. Licensor’s executives testified that they first learned of the Funimation Services Agreement in 2010 as a result of Mr. Elliott’s audit. (Hosaka Deck ¶¶ 18-19, 21). On June 8, 2010, Mr. Newborn delivered a copy of the Funimation agreements to Mr. Shinoda, Mr. Hosaka, and Mr. Kawasaki, who were in Las Vegas for a trade show. (8/31/2011 Tr. 32:20-22 (Shinoda); Hosaka Deck ¶ 43).

*637 75. 4Kids’ witnesses testified during trial that they did not discuss the Funimation Services Agreement, or the income stream flowing from that agreement, with anyone at the Consortium. (9/12/11 Tr. 183:11-185:11 (Newborn); 9/15/11 Tr. 42:10-17 (Nowicki); 9/19/11 Tr. 29:2-21 (Nowicki); 8/8/11 Dep. Tr. 61:17-62:22, 159:25-160:12 (Kahn)).

76. Mr. Newborn testified that the existence of the Funimation Services Agreement was not previously disclosed to Li-censor because it was not something that a licensee would typically be required to disclose. Mr. Newborn and Mr. Kahn both explained that a licensee is required to report its sales and pay its royalty, but not to disclose the details of its relationship with its distributor, nor reveal its profit margins. Thus, Mr. Kahn testified:

[I]t’s not the Consortium’s business how any licensee distributes or sells. The only thing the Consortium should be aware of is that the royalty that is being collected is valid and is based on the sales by that licensee.

No licensee would tell you what their margins are, would tell you how they sell it. They would — that’s all stul that they keep inside their own particular bailiwick, and that the only thing that the licensor is responsible for is to make sure that they get an accurate accounting of the royalty based on the wholesale sales of those — of those rights — of those particular videos.

(9/12/2011 Tr. 183:11-185:11 (Newborn); 8/8/11 Dep. Tr. 88:4-89:14 (Kahn)).

77. Consistent with 4Kids’ explanation of why it did not share with Plaintiffs the details of its relationship with Funimation, Mr. Shinoda testified that ADK was not aware of the details of its licensee Kona-mi’s relationship with its former distributor Upper Deck. For example, Mr. Shino-da did not know whether or not Upper Deck manufactured or printed trading cards on behalf of Konami. Nor did Mr. Shinoda know who, as between Konami and Upper Deck, had the inventory risk for the trading cards. (8/30/2011 Tr. 143:8-10, 143:18-22, 144:12-149:6 (Shino-da); 8/31/2011 Tr. 26:1-6 (Shinoda)).

78. There is no evidence of any representation by 4Kids to Licensor that 4Kids’ only revenue from the Yu-Gi-Oh! home videos came from 4Kids’ share of the 20% royalty on the wholesale selling price. Mr. Hosaka could not recall ever having received such a representation from anyone at 4Kids. (9/6/2011 Tr. 17:7-14 (Hosaka)).

5. 4Kids’ Home Video Subsidiary

79. In 2002, 4Kids created a wholly-owned subsidiary, 4Kids Entertainment Home Video, Inc. (“4Kids Home Video”), to conduct its home video operations. (Newborn Decl. ¶ 29; 9/12/2011 Tr. 171:21-172:9 (Newborn)). 19 According to Bruce Foster, 4Kids’ Chief Financial Officer, 4Kids Home Video had between seven and nine full-time employees during its peak years of operation. In addition, a number of 4Kids employees devoted portions of their time to work on 4Kids Home Video projects, including employees from 4Kids’ graphic design, editing, and art departments. (Foster Decl. ¶ 6; 9/21/2011 Tr. 74:13-25 (Foster)).

80. Mr. Foster compiled a summary of 4Kids Home Video expenses extracted from 4Kids’ trial balance, which is created by 4Kids in the ordinary course of business and has been audited. This expense summary shows that between 2001 and *638 2009, 4Kids Home Video incurred approximately $6.9 million in expenses related to, inter alia, cost of sales, personnel, office expenses, professional fees, and selling and production costs. (Ex. T-242; Foster Decl. ¶¶ 7-9; 9/21/2011 Tr. 67:5-71:15 (Foster)).

81. Approximately half of the VHS and DVD titles released by 4Kids between 2002 and 2008 related to the Yu-Gi-Oh! property. (Ex. T-473; 9/20/2011 Tr. 98:16-99:16 (Foster); 9/21/2011 Tr. 73:12-74:6 (Foster)). Thus, a reasonable approximation of the total 4Kids Home Video’s costs associated with Yu-Gi-Oh! home videos is half of the division’s approximately $6.9 million in total expenses, or roughly $3.45 million. (Foster Decl. ¶ 9; Ex. T-242).

6. The Revision of Paragraph l(b)(iii) in the 2008 Agreement

82. During the negotiations leading to the amendment and restatement of the 2001 Agreement, Licensor requested that Paragraph l(b)(iii) (which governs when 4Kids is exercising home video rights itself) be revised to provide that Licensor shall receive the entire royalty paid on Yu-Gi-Oh! home video releases made by 4Kids Home Video. (Ex. T-34). As a result of this change, the royalty paid on Yu-Gi-Oh! home video releases made by 4Kids Home Video was no longer made part of Gross Income in the 2008 Agreement and would not be split between 4Kids and the YGO Consortium. (Hosaka Decl. ¶ 24; Ex. T-11 ¶ l(b)(iii)).

83. The 2008 Agreement was signed by the parties in mid-October 2008. Paragraph l(b)(iii) was revised as requested by Licensor to read as follows:

If 4Kids exercises the Home Video Rights to the Episodes and any Additional Episodes itself, 4Kids shall pay Licensor a royalty to be negotiated in good faith of between 15% and 20% of the wholesale selling price, net of returns, for such Home Video Devices. 20 Such royalty payment shall not be part of Gross Income and shall not be divided among the parties as provided below in Paragraph 4 but rather shall be paid exclusively to Licensor.

(Ex. T-ll).

84. Mr. Sugimoto testified that 4Kids had always maintained that it was exercising the home video rights itself, and that it was never ADK’s belief that 4Eids had agreed to make no money off of the home videos as a result of this amendment. (9/8/2011 Tr. 38:1-39:5 (Sugimoto); Sugi-moto Decl. ¶ 20; Ex. T-8). 4Kids had been reporting and paying Licensor as if it were exercising the Home Video Rights itself, instead of under the payment structure required if 4Kids had licensed those rights to a third party. (Sugimoto Decl. ¶ 21).

B. Finding No. 2: Majesco Service Fees

85. In his second Finding, Mr. Elliott suggested that 4Kids had improperly withheld $91,666.50, representing Licensor’s 50% share of the $183,333.00 in fees paid to 4Kids by Majesco Sales Inc. (“Majes-co”). (Ex. T-14 at 4-5; Elliott Decl. ¶¶ 27-29). Mr. Elliott determined that 4Kids had not included these service fees in its calculation of the Consortium’s share of Gross Income and that it had omitted any reference to such fees in its participation statements. (Elliott Decl. ¶ 28).

*639 86. The Majesco service fees, like the Funimation service fees that are the subject of Finding 1, relate to Yu-Gi-Oh! home videos. In 2004, 4Kids Home Video entered into an agreement with Majesco (the “Majesco Services Agreement”) for distribution of Yu-Gi-Oh! television episodes stored on cartridges compatible with Nintendo’s popular handheld videogame system, the Game Boy Advance (“GBA”). (Ex. T-39).

1. Background of the 4Kids— Majesco Relationship

87. Between 2002 and 2004, 4Kids developed and applied for patents on a video compression technology enabling television episodes to be condensed, digitized, and programmed onto cartridges compatible with GBA. (Newborn Decl. ¶ 81). In order for cartridges containing television episodes compatible with GBA to be sold, Nintendo needed to approve the quality of the video and audio compression and the functionality of the menus transforming the buttons on the GBA handheld system into controls for playing television episodes on GBA (play, rewind, stop, fast-forward). (Id.). In addition, in order to sell GBA-compatible cartridges — whether for video-games or for television episodes — the cartridges needed to be ordered from and programmed by Nintendo. (Id.).

88. During 2003, 4Kids submitted to Nintendo for review and comment many versions of compressed video of Yu-Gi-Oh! episodes using the 4Kids-developed compression technology. (Newborn Decl. ¶ 82). Upon receiving comments from Nintendo, 4Kids performed additional editing of the compressed episode to improve scenes or individual animation frames that did not look crisp when viewed on GBA. (Id.).

89. During the same time period, Ma-jesco developed its own video compression technology and also submitted compressed television episodes to Nintendo for review and approval. (Newborn Deck ¶ 83). Since Majesco was principally a video game company producing video games for GBA, Majesco had a longstanding relationship with the Nintendo quality control department and was more experienced in coping with the demands of this Nintendo department. (Id.).

90. In early 2004, 4Kids and Majesco agreed to work together to release cartridges compatible with GBA containing television episodes of various series, including Yu-Gi-Oh!, with respect to which 4Kids had been granted home video rights. (Newborn Deck ¶ 84). 4Kids and Majesco agreed that the GBA cartridges of the 4Kids-produeed series would be compressed using the compression technology, which resulted in the best quality video of the specific television episode. (Id.).

91. On March 11, 2004, 4Kids issued a press release announcing that 4Kids had appointed Majesco as the distributor of GBA-compatible video cartridges of 4Kids-produced television episodes, including Yu-Gi-Oh! and that the 4Kids developed video compression technology that had been approved by Nintendo would be used in Game Boy Advance Videos. (Newborn Deck ¶ 85; Ex. T-483). The press release also stated that the GBA video cartridges of the 4Kids-produced episodes would be promoted on the 4Kids-controlled four-hour Saturday morning block on the Fox Network and on 4Kids’ websites. (Newborn Deck ¶ 85; Ex. T-483).

2. The Majesco Services Agreement

92. On April 1, 2004, 4Kids entered into two agreements, a distribution agreement and a services agreement with Ma-jesco. (Ex. T-39). Under the Majesco Services Agreement, 4Kids was obligated to provide certain marketing services to Majesco, including: (i) up to four pro *640 motions per year on “FoxBox” (a four-hour block of Saturday morning television programmed by 4Kids); (ii) up to four thirty-second commercials on “FoxBox”; (iii) banner ads on the “FoxBox” website and on the 4Kids website; and (iv) coordination of cross-promotional opportunities with other licensees of Yu-Gi-Oh! merchandising rights. (Ex. T-39 ¶ 3; Newborn Decl. ¶86). In addition, 4Kids developed the video compression for the Yu-Gi-Oh! episodes sold on GBA-compatible cartridges and provided technical assistance to Ma-jesco with regard to the user interface (converting the buttons on the GBA video game system into controls for a video player — play, rewind, fast-forward, pause). (Newborn Deck ¶ 86).

93. During the first two quarters of 2004, 4Kids worked extensively with Ma-jesco and Nintendo on the compression of the 4Kids’ produced television episodes, including the Yu-Gi-Oh! episodes. (Newborn Deck ¶ 87; Ex. T-485).

94. In March 2004, 4Kids received the approval of Shueisha — the publisher of the Yu-Gi-Oh! manga and a member of the Yu-Gi-Oh! Consortium — regarding the quality of the audio and video in the episodes compressed with 4Kids’ compression technology. (Newborn Deck ¶¶ 88-89).

95. During the next few months of 2004, 4Kids finalized the compression of the Yu-Gi-Oh! episodes that were ultimately released during the summer of 2004. (Newborn Deck ¶ 90). As required by the Majesco Services Agreement, 4Kids provided Majesco with television commercials and banner ads on 4Kids-controlled websites (which at the time were the sixth most popular kids websites in the United States), and offered GBA Videos as prizes for promotions and sweepstakes broadcast on the four-hour Saturday morning block on Fox programmed by 4Kids. (Id.). Ultimately, Game Boy Advance Video was not a successful business, due to the significant pricing disadvantage of Game Boy Advance Videos relative to DVDs. (Newborn Deck ¶ 92).

96. Pursuant to the Majesco Services Agreement, 4Kids was paid $183,333.00 in services fees by Majesco. (Ex. T-14 at 4).

97. The Majesco Services Agreement contains a confidentiality provision identical to the provision contained in the Funi-mation Services Agreement. (Id. at ¶ 10(a)). The distribution agreement executed with Majesco does not contain a similar provision. (Ex. T-246).

C. Finding No. 3: International Withholding Taxes

98. In his third Finding, Mr. Elliott suggested that 4Kids had failed to provide appropriate documentation of foreign (ie., non-U.S.) withholding taxes. As described in detail below, according to Mr. Elliott, foreign withholding tax certificates were “unsubstantiated” 21 if (1) 4Kids did not possess the certificate or (2) if the certificate did not reference Licensor or the Yu-Gi-Oh! property. Whether or not ADK or TV Tokyo did or could use these certificates to claim foreign withholding tax credits was irrelevant to his Finding.

1. Withholding Taxes Generally

99. As a general matter, royalty income earned in one country on behalf of a licensor in another country may be subject to a withholding tax, the amount of which will vary depending on the internal regulations of the taxing jurisdiction and on taxing treaties. (Foster Deck ¶ 10; Kasai Report at 4; Tokuhiro Report at 2). For example, if a French company pays a roy *641 alty to a Japanese company, the French government can impose income taxes upon the Japanese company by requiring the French company to withhold a portion of the royalty and remit that portion to the French taxing authority. (Foster Decl. ¶ 10; Kasai Report at 4).

100. By law, the licensees and sub-agents are required to withhold and remit these taxes to their local tax authorities. (Elliott Decl. ¶ 30). Paragraph 4(c) of the License Agreements permits 4Kids to deduct such withholding taxes from Plaintiffs’ share of Gross Income. (Ex. T-6 and Ex.T-11 at ¶ 4(c)).

101. The percentage of withholding required varies by country. (Foster Decl. ¶ 10; Tokuhiro Report at 2). In some countries where there is a tax treaty in place between Japan and the particular foreign country, the percentage that must be withheld can be reduced if the foreign licensee documents with the local tax authority that the licensor is a resident of Japan. (Foster Decl. ¶ 10). 22 With respect to 4Kids, these taxes ranged from 5% to 22.5% of gross royalties and licensing fees and represent amounts that 4Kids’ international licensees and subagents deducted from their quarterly royalty and licensing payments to 4Kids. (Elliott Decl. ¶ 30).

102. After the tax is paid, the local taxing authority will issue what is known as a “withholding tax certifícate.” (Foster Decl. ¶ 16). The length of time between the payment of the tax and the issuance of a certificate varies depending on the country and can range from six months to a year or two; accordingly, a corporate tax payer may not have the certificate in hand for that fiscal year when its tax return is due to be filed. (Foster Decl. ¶ 17; Koz-mata Decl. ¶ 13; 9/19/2011 Tr. 74:18-75:10 (Kozmata); 9/6/2011 Tr. 33:7-8, 33:18-34:12 (Hosaka)).

103. Licensees typically send withholding tax certificates either directly to the licensor or to its agent (in this case, to 4Kids in the United States or to 4Kids’ United Kingdom subsidiary for all territories outside of Japan and Asia). (Foster Decl. ¶ 18). 4Kids collects, files, and periodically transmits or distributes the certificates that it receives to its licensors. (Foster Decl. ¶ 18; Kozmata Decl. ¶ 17; 9/19/2011 Tr. 73:4-14, 77:10-22, 80:20-81:3, 105:6-22 (Kozmata); Ex. T-250).

2. Treatment of Withholding Taxes under the License Agreements

104. Pursuant to the License Agreements, 4Kids serves as Licensor’s agent with respect to certain licensing opportunities for the Yu-Gi-Oh! properties in countries outside of Japan and Asia. (Foster Decl. ¶ 12). 23 The License Agreements provide that foreign withholding taxes paid by 4Kids’ subagents are to be deducted from Licensor’s share of royalties. (Ex. T-6 ¶¶ 4(c), (g); Ex. T-ll 1HI4(c), (g)). The License Agreements also provide that 4Kids shall provide, or cause its subagents to provide Licensor with “evidence” of taxes withheld, although the agreements do not specify the nature of such evidence:

4Kids shall provide Licensor or shall cause the applicable subagent or applica *642 ble licensee to provide Licensor with evidence of payment of such withholding tax on behalf of Licensor so that Li-censor may claim an appropriate tax credit or tax deduction. 4Kids shall also assist Licensor in filing any and all forms with the taxation authorities of the various countries within the Territory 24 so as to enable Licensor to claim any tax credits to which Licensor may be entitled.

(Ex. T-6 ¶ 4(g); Ex. T-ll ¶ 4(g)).

105. Mr. Newborn explained that in drafting Paragraph 4(g) of the License Agreements, he specifically chose to use a broad word — “evidence”—because he did not know what documentation was required under Japanese law to claim foreign withholding tax credits or what documentation was prepared and provided by numerous foreign countries in the 4Kids Territory. It was his assumption that Li-censor understood what documentation was necessary, and would inform 4Kids of the requirements accordingly. (9/12/2011 Tr. 103:8-24,104:16-105:2 (Newborn)).

106. 4Kids cannot compel a foreign subagent to bypass, reduce, or alter the payment of foreign withholding taxes, and 4Kids obtains no benefit from a foreign subagent’s withholding of such taxes. (Foster Decl. ¶ 11).

107. 4Kids receives the net proceeds (ie., gross royalties less withholding taxes paid to the local taxing authorities and other permitted deductions) from its Yu-Gi-Oh! subagents in foreign countries. (Foster Decl. ¶ 14). 4Kids then records the net receipts and reconciles them with the remittances provided by the sub-agent. 25 (Id.). Next, the net receipts are compiled and provided in quarterly royalty reports provided to Licensor, also known as “participation statements.” (Id.). The participation statements provide detailed information regarding gross income, foreign withholding taxes, bank fees, and net cash receipts, all of which are organized by date, subagent, and country. (Id.). The remittance provided by the subagent is the basis for the information contained in participation statements provided to Licensor. (Id.).

108. It is in 4Kids’ interest to ensure that foreign subagents actually pay the foreign taxing authority and are not simply reducing the proceeds payable to 4Kids by the amount of the foreign withholding taxes due. (9/20/2011 Tr. 206:16-207:21 (Foster)).

109. There is no dispute that 4Kids advised Licensor on a quarterly basis of the amount of foreign withholding taxes deducted from Licensor’s share or royalties. The quarterly Yu-Gi-Oh! participation statements that 4Kids provided to *643 Licensor listed all foreign withholding taxes paid by foreign subagents and withheld from the royalty payments to the Li-censor. 26 (Foster Decl. ¶ 15; 8/31/2011 Tr. 35:18-21 (Shinoda); 8/22/11 Dep. Tr. at 48:5-20 (Kubota)).

110. Although Licensor has claimed that no foreign withholding tax certificates were provided by 4Kids to Licensor, there is little credible evidence to support this assertion. There is evidence that 4Kids did forward some tax certificates from foreign subagents to ADK. (Kozmata Decl. ¶ IT; Foster Decl. ¶ 19; 9/19/2011 Tr. 72:25-73:11, 103:8-11 (Kozmata); Ex. T-250). Mr. Hosaka testified that he personally undertook a search for such certificates after the initiation of the litigation, and looked in all of the “logical places” for the certificates — but on cross-examination he admitted that he searched for the certificates only in ADK’s tax returns and in 4Kids’ quarterly participation statements. (Hosaka Decl. ¶ 50; 9/6/2011 Tr. 38:6-12, 120:10-121:1 (Hosaka)). Although Mr. Hosaka testified in his re-direct examination that he also looked in the accounting department and in anything related to tax deductions to locate the certificates, he again admitted on re-cross examination that he looked only at the participation statements and in the tax returns for the certificates. (9/6/2011 Tr. 123:7-19, 130:15-23,131:7-132:3 (Hosaka)).

111. While Licensor has asserted that, “based on various agreements between the YGO Consortium,” ADK is the sole entity that is responsible for and entitled to claim foreign withholding tax credits, no such agreements codifying this allocation has been produced, used at trial, or introduced into evidence. (Kawasaki Decl. ¶ 48). Despite the assertions as to the allocation of tax credits and the existence of various agreements presented in his declaration, Mr. Kawasaki, the sole representative of TV Tokyo to appear in this adversary proceeding, testified that “it is a fact that tax credits have not been discussed in the Consortium.” (9/1/2011 Tr. 148:23-149:2 (Kawasaki)). Mr. Kawasaki also presented contradictory testimony as to his knowledge as to which entities within the Li-censor entity were entitled to claim the foreign withholding tax credits. 27 Although Mr. Kawasaki testified at trial that, to his knowledge, ADK was the only entity entitled to claim foreign withholding tax credits, he was confronted by his contradictory deposition testimony where he stated that he did not know which of the *644 Licensor entities were entitled to claim tax credits. (9/1/2011 Tr. 148:1-20 (Kawasaki)).

112. Mr. Tokuhiro, 4Kids’ tax expert, testified that, under Japanese law, the beneficiary of foreign source income is entitled to claim foreign withholding tax credits, but that based on his review of the License Agreements it did not appear to him that ADK was the only entity among the Licensors that was entitled to claim the foreign withholding tax credits related to the income generated pursuant to those agreements. (9/20/2011 Tr. 32:20-33:8 (Tokuhiro)).

113. Evidence was presented that some foreign licensees directly sent foreign withholding tax certificates to TV Tokyo. (Ex. T-28; Ex. T-28A; Kozmata Deck ¶ 15). For example, Exhibit T-28 is a collection of thirteen separate tax certificates issued in the name of TV Tokyo. 28 Although six of the certificates bear an incorrect address for TV Tokyo, the remaining seven certificates bear TV Tokyo’s correct addresses in both New York and Japan. (9/1/2011 Tr. 149:7-11, 153:4-18 (Kawasaki); Ex. T-28; Ex. T-28A). Mr. Kawasaki admitted that he does not know whether TV Tokyo ever received these certificates, forwarded them to ADK, or ever contacted 4Kids to request that the names on the certificates be changed from TV Tokyo to ADK. (9/1/2011 Tr. 158:21-159:3 (Kawasaki)). Mr. Kawasaki testified that after his deposition, he checked whether TV Tokyo had received any foreign withholding tax certificates. (9/1/11 Tr. 189:12-193:7 (Kawasaki)). Based upon the information he received from TV Tokyo’s accounting department, Mr. Kawasaki concluded that no tax certificates had been received. (9/1/11 Tr. 189:12-193:6 (Kawasaki)).

114. There has been no reliable evidence presented as to whether or not TV Tokyo claimed any foreign tax credits, including credits for those withholding taxes listed in Exhibit T-28. No tax returns for TV Tokyo were produced or introduced into evidence at trial, and Mr. Kawasaki admitted that he has never reviewed or assisted in the preparation or filing of TV Tokyo’s tax returns. (9/1/2011 Tr. 157:1-5 (Kawasaki)). Although Mr. Kawasaki admitted during his deposition that he could not say whether or not the credits represented by the certificates in Exhibit T-28 were claimed by TV Tokyo, at trial Mr. Kawasaki presented hearsay testimony that he confirmed that the credits were not received by TV Tokyo. (9/1/2011 Tr. 157:6-24 (Kawasaki)). Mr. Kawasaki did not reference his communications with the accounting department in his declaration nor did he attach any documentation to his declaration evidencing how he was able to confirm this information. (9/1/2011 Tr. 153:24-155:7,157:25-158:12 (Kawasaki)).

3. Mr. Elliott’s Audit Finding

115. During his royalty audit, Mr. Elliott asked that 4Kids provide him with copies of foreign tax withholding certificates going back to 2002, ostensibly so that he could verify that the amounts deducted in 4Kids’ participation statements were accurate. (8/29/2011 Tr. 178:3-16 (Elliott)).

116. However, Mr. Elliott admitted that he did not review the foreign remittances or cash receipts to confirm whether they matched the foreign withholding tax deductions listed in the participation statements. (8/29/2011 Tr. 176:25-177:4, 177:20-178:2 (Elliott)). Instead, Mr. Elliott’s analysis was solely based on a re *645 view of the certificates themselves and on the participation statements. (8/29/2011 Tr. 176:15-19,178:3-10 (Elliott)).

117. There is no evidence, in Mr. Elliott’s audit Findings or otherwise, that any foreign subagent failed to pay taxes to the applicable taxing authority for any amounts that were withheld. The only means to assess a subagent’s failure to pay taxes would be through an audit of the subagent. (9/19/2011 Tr. 71:11-22 (Koz-mata); 9/20/2011 Tr. 206:16-208:4, 210:4-9 (Foster)).

118. There is no evidence, in Mr. Elliott’s audit Findings or otherwise, that royalties were not reported properly with respect to foreign withholding tax deductions. (8/30/2011 Tr. 76:21-77:2 (Elliott)).

119. There is no evidence, in Mr. Elliott’s audit Findings or otherwise, that 4Kids claimed any withholding tax credits related to the Yu-Gi-Oh! property on its own behalf. (Foster Decl. ¶ 22; Newborn Decl. ¶ 96).

120. Exhibit 1 to Mr. Elliott’s final audit report reflects his analysis of the tax certificates. (Ex. T-14 at 5-7). Based on his review of the participation statements, Mr. Elliott determined that 4Kids had deducted $2,538,963.75 from Licensor’s share of Gross Income. (Ex. T-14; see also Elliott Decl. ¶ 30; Shinoda Decl. ¶ 41; Ho-saka Decl. ¶49). Mr. Elliott found that $1,386,913.86 worth of tax certificates were “unaccounted for,” meaning that 4Kids did not have copies of the tax withholding certificates in its possession. (Ex. T-14 at 6-7). Although Mr. Elliott did not ask ADK or TV Tokyo whether they had ever received certificates from subagents directly, Mr. Elliott deemed these $1,386,913.86 worth of certificates to be “unsubstantiated” because they were not located in 4Kids’ files. (Elliott Decl. ¶ 36).

121. Mr. Elliott noted in his analysis that tax certificates in the amount of $1,152,049.89 had been provided for his review by 4Kids. (Ex. T-14). Of this $1,152,049.89, Mr. Elliott determined that $273,196.59 were “substantiated” by virtue of the fact that they were located in 4Kids’ files and included the Licensor’s name (by referencing as the tax beneficiary either TV Tokyo, NAS, ADK, or the Yu-Gi-Oh! property). (Ex. T-14; Elliott Decl. ¶ 35; 8/29/2011 Tr. 190:11-191:6 (Elliott)). According to Mr. Elliott, his analysis of whether these certificates were substantiated did not turn on whether or not they had been provided to Licensor; their presence in 4Kids’ files and reference to Li-censor was the sole basis for his description of these certificates as substantiated. (8/29/2011 Tr. 190:11-191:6 (Elliott)).

122. Of the tax certificates that 4Kids provided to Mr. Elliott, he noted that $873,853.30 were, in his opinion, “unsubstantiated” because they did not reference the Yu-Gi-Oh! property or the Licensor on the face of the certificate. (Ex. T-14 at 6-7; Ex. T-97; Foster Decl. ¶ 35). However, at trial, Mr. Elliott admitted that he did not notice the Yu-Gi-Oh! notation present on substantially all of the certificates in this group. 29 (Ex. T-97; 8/29/2011 Tr. 199:5-200:7). Despite his characterization of these certificates as “unsubstantiated,” Mr. Elliott testified that he did not know whether, as a matter of Japanese tax law, ADK could have relied on these certificates to claim foreign withholding tax credits. (Ex. T-97; 8/29/2011 Tr. 200:8-12) (Elliott).

123. Approximately $205,215.79 of these certificates which Mr. Elliott deemed to be “unsubstantiated” relate to the with- *646 holdings of the Mattel subsidiaries. Mr. Elliott admitted that during his audit he was provided with an affidavit from Mattel’s Vice President of Finance/Assistant Controlled, dated March 25, 2007, which confirmed that those certificates all related to the Yu-Gi-Oh! property and reflected withholding taxes paid on behalf of NAS. (Foster Decl. ¶ 36; Ex. T-95; 8/29/2011 Tr. 200:21-201:22 (Elliott)). Mr. Elliott admitted that he does not know whether or not ADK could have used these documents to claim foreign withholding tax certificates under Japanese law. (8/29/2011 Tr. 201:23-202:3 (Elliott)).

124. Mr. Elliott admitted that the tax deductions that he deemed as “unsubstantiated” were listed and included in the quarterly participation statements provided by 4Kids to Licensor, and thus known to Licensor. (8/29/2011 Tr. 176:11-14 (Elliott)).

125. Based on the above, Mr. Elliott quantified Licensor’s tax-related audit claim against 4Kids at $2,265,767.16 — by adding together the $1,386,913.86 of unaccounted for certificates and the $873,853.30 worth of tax certificates that were, in his opinion, “unsubstantiated” because he concluded, albeit erroneously, that they did not reference the Yu-Gi-Oh! property or the Licensor on the face of the certificate. See FF ¶ 122, supra; Ex. T-14 at 3, 5-6; Elliott Decl. ¶ 36. However, Mr. Elliott admitted that he could not conclude that Licensor was injured in the amount of $2,265,767.16 because that conclusion would require an understanding and knowledge of Japanese tax law, which he does not possess. (8/29/2011 Tr. 179: 4-5, 183:18-184:2 (Elliott)). Furthermore, as demonstrated below, Mr. Elliott’s analysis did not and could not quantify any tax injury allegedly suffered by Licensor.

126. Mr. Elliott did not have access to the tax returns of ADK or TV Tokyo and thus could not and did not independently assess whether either had claimed any foreign withholding tax credits related to Yu-Gi-Oh!. (8/29/2011 Tr. 179:6-8, 180:9-11 (Elliott)). Although he admits that, if either ADK or TV Tokyo separately received the certificates, there would be no value to the claim that he put forth in his final report, Mr. Elliott never asked ADK or TV Tokyo whether they had received any foreign withholding tax certificates directly from subagents. (Id. at 183:5-9, 180:12-181:11). Mr. Elliott cannot say whether ADK or TV Tokyo had claimed any foreign withholding tax credits with respect to the approximately $2.26 million which Mr. Elliott deemed to be “unsubstantiated.” (Id. at 181:12-182:8).

127. According to Mr. Elliott, the crux of his Finding 3 was not whether or not Licensor could have claimed a tax credit. (Id. at 182:9-12). It was neither his purpose nor his intent to identify an amount that Licensor could recover from 4Kids. (Id. at 182:17-22). Instead, his audit focused on the identification of “unsubstantiated” tax deductions (ie., whether or not 4Kids had possession of the certificate, whether the certificate was issued in the Licensor’s name, or whether the certificate, in some way, identified the Yu-Gi-Oh! property). (Ex. T-14 at 5-6).

128. Exhibit 1 to Mr. Elliott’s November 2010 final audit report sets forth the reasoning behind his characterization of certificates as “unsubstantiated.” Without access to Exhibit 1 to Mr. Elliott’s November 2010 final audit report, there was no way for 4Kids to assess which tax events Mr. Elliott had deemed to be unsubstantiated. (9/21/2011 Tr. 87:1-4 (Foster); Ex. T-14; Ex. T-18). Despite a request for Mr. Elliott’s audit report in June 2010, and various requests for further information about his Findings, 4Kids was not provided with any iteration of Mr. Elliott’s audit *647 report until July 2011. 30 (Ex. T-17; Newborn ¶¶ 139, 149, 151; Foster Decl. ¶ 28).

129. In view of the foregoing, there is no basis to find that Mr. Elliott’s Finding 3 reflects an underpayment of royalties to Licensor or that it establishes that Li-censor was injured in the amount of $2,265,767.16. There is insufficient evidence to conclude that Mr. Elliott’s audit Finding relates to whether or not ADK could have claimed foreign withholding tax credits.

4. Expert Testimony Regarding Japanese Tax Law

130. The Court heard testimony from two experts on Japanese tax law: Takashi Kasai, Licensor’s expert, and Takaaki Tok-uhiro, 31 4Kids’ expert.

131.A Japanese entity receiving licensing income from overseas, some of which has been withheld by its foreign licensee for the payment of withholding taxes, may claim either a tax credit or a tax deduction with respect to those taxes withheld. (Tokuhiro Report at 2, 5). If the Japanese entity claims a tax credit, then it reports the gross income received by the foreign licensee. (8/29/2011 Tr. at 135:2-6,135:12-16 (Kasai)). However, if the Japanese entity takes a tax deduction, then it reports the net income remitted to the licensor. (8/29/2011 Tr. 135:17-19 (Kasai)). There is a limit to the amount of foreign withholding tax credits that a Japanese corporation can claim in a single year. (8/29/2011 Tr. 136:11-15,153:20-25 (Kasai); 9/20/2011 Tr. 20:3-22 (Tokuhiro)). It is necessary to review the full tax return and apply a

*648 formula to determine the credit limit for a given year. (8/29/2011 Tr. 136:16-19 (Kasai)). A corporation that has credits in excess of that limit can carry-over credits for three years. (9/20/2011 Tr. 20:14-24 (Tokuhiro)).

132. The parties’ experts are in agreement that, during the relevant time period (2001 to 2009), 32 Japanese corporate taxpayers seeking a tax credit were required to attach proof of payment of taxes on behalf of the taxpayer, and that the best evidence of such payment is the tax withholding certifícate. (9/20/2011 Tr. 21:8-21 (Tokuhiro); 8/29/2011 Tr. 107:18-108:7 (Kasai)). The experts’ opinions diverge as to what alternatives are available to a taxpayer who does not have possession of the tax certificates, although both agree that the certificate is not required under the Japanese tax law and regulations so long as the taxpayer presents alternative proof which evidences payment of taxes. (8/29/2011 Tr. 107:18 — 108:7 (Kasai); 9/20/2011 Tr. 21:9-23:12, 52:1-52:13; 56:5-56:8 (Tokuhiro)).

133. Mr. Kasai admitted that documentation, other than the certificate itself, would be “acceptable]” to the Japanese National Tax Authorities, so long as the documentation evidenced payment of the withholding taxes. (8/29/2011 Tr. 108:1-108:7 (Kasai)). In Mr. Kasai’s view, proof that the taxes had been paid could not be accomplished by submission of (a) a sworn affidavit explaining that payments had been made for the benefit of ADK or (b) 4Kids’ cash receipts to the Japanese National Tax Authorities. (8/29/2011 Tr. 128:22-129:11 (Kasai)).

134. Although Mr. Kasai has no experience filing a request for foreign tax credit without possession of the certificate, he provided his “expectation” of the result of such efforts. (8/29/2011 Tr. 110:18-22, 138:5-9, 111:4 — 11 (Kasai)). Mr. Kasai was equivocal when asked, on several occasions, whether a Japanese taxpayer could seek a tax credit without having the tax certificates in hand, stating at various times that it would be “difficult.” (8/29/2011 Tr. 111:4-11, 112:13-19, 114:17-19 (Kasai)). Mr. Kasai then admitted that “if [the taxpayer] knew that the certificates would be coming in a month, then maybe” they could seek a tax credit, because the taxpayer “would be able to verify that the amount was correct in a very short period of time.” (8/29/2011 Tr. 112:20-113:23 (Kasai)). Mr. Kasai did not identify any law or regulation limiting this time period to one month.

135. Mr. Kasai stated that if one of his clients was in a position where it could not take a foreign withholding tax credit because the client did not have the relevant tax certificates, he would advise his client to ask its foreign licensee for the certificates. (8/29/2011 Tr. 113:24-114:5 (Kasai)). Mr. Kasai admitted that if one of his clients received a participation statement or royalty report from its licensing agent, the first thing he would advise his client to do would be to ask for the withholding tax certificate referenced in the participation statement. (8/29/2011 Tr. 127:6-9 (Kasai)).

136. Mr. Tokuhiro testified that it is “common” for Japanese corporate taxpayers to seek foreign withholding tax credits without possession of the certificate, because the certificates are often not available at the time of filing. (9/20/2011 Tr. 21:22-22:9 (Tokuhiro)). He explained that he often advises Japanese corporate tax *649 payers about what documentation to provide to the National Tax Authority to claim foreign tax credits. (Id. at 22:10-23:4). In those instances Mr. Tokuhiro advises his clients to submit the “best documentation” of proof of payment that they have and to continue to request the certificate. (Id. at 23:5-23:12).

137. Mr. Tokuhiro translated the relevant section of the Japanese tax regulations (Section 69 of the Corporate Tax Law) for the Court and explained that the regulations require only submission of documentation supporting the payment of taxes, which includes, but is not limited to, the withholding tax certificate. (9/20/2011 Tr. 34:15-35:2, 52:1-53:2 (Tokuhiro)).

138. Both parties’ experts agree that a Japanese corporate taxpayer may, as a matter of right, amend its tax return in the year after it was filed to claim further foreign tax credits if the original return claimed some foreign tax credits. (8/29/2011 Tr. 116:6-15, 151:9-17 (Kasai); 9/20/2011 Tr. 35:8-13 (Tokuhiro)). In order to file the amended return, the company must have documents to substantiate its amendment. (8/29/11 Tr. 116:13-18 (Kasai)). To amend a tax return to receive a deduction for foreign withholding taxes, the company would need documents to show that the taxes were paid overseas. (Id. at 116:19-117:4). These documents could be either withholding tax certificates, or tax filings showing that taxes were paid to a foreign government. (Id. at 117:5-11).

139. Both parties’ experts further agree that a Japanese corporate taxpayer may petition the Japanese National Tax Authority for a period of up to five years after the initial tax return is filed for permission to amend its tax return to seek further foreign tax credits if the taxpayer elected to take credits, rather than a deduction. (8/29/2011 Tr. 116:6-12, 117:22-118:19 (Kasai); 9/20/2011 Tr. 35:18-35:24 (Tokuhiro)). Both experts agree that if there is sufficient evidence to support the amendment, the taxing authority may accept the request. (8/29/2011 Tr. 125:6-10 (Kasai); 9/20/2011 Tr. 35:25-36:3, 36:19-36:22 (Tokuhiro)). If the Japanese tax authorities reject the petition, the company has no avenue to appeal the decision. (8/29/11 Tr. 118:10-15 (Kasai)).

140. Both experts agreed that if a Japanese corporation received certificates issued in another entity’s name they would advise their client to try to obtain a certificate in the correct name. (9/20/2011 Tr. 33:18-24 (Tokuhiro); 8/29/2011 Tr. 152:20-24 (Kasai)). Although Mr. Kasai has no personal experience submitting certificates issued in another entity’s name as proof of payment of foreign withholding taxes, he testified that the Japanese National Tax Authority would likely reject such claims. (8/29/2011 Tr. 128:9-129:5 (Kasai)). In contrast, Mr. Tokuhiro testified that he would advise his clients to submit a certificate issued in another entity’s name to claim a credit with an explanation of the incorrect issuance. (9/20/2011 Tr. 33:9-34:7 (Tokuhiro)). In Mr. Tokuhiro’s experience, submission of an incorrect certificate might trigger an audit, but the audit process would afford the taxpayer an opportunity to explain the discrepancy. (9/20/2011 Tr. 37:14-24 (Tokuhiro)).

141. One of Licensor’s expert witnesses, Arthur Erk, provided an expert opinion attesting to the validity of Mr. Elliott’s audit methods and Findings and as to the standards and practices in the licensing industry for substantiating deductions. Mr. Erk testified that, with respect to the substantiation of foreign withholding taxes, he generally requires that licensees show a withholding tax certificate or a cancelled check. (9/9/2011 Tr. 62:7-12(Erk)). When asked about the situation where a tax certificate did not list the *650 licensor’s name, and whether an affidavit from a sublicensee would be acceptable to substantiate the deduction, Mr. Erk testified that it would be up to his client (ie., the licensor), to determine whether such proof was acceptable. (9/9/2011 Tr. 97:20-98:6(Erk)). Mr. Erk admitted that, in this ease, his assessment of Mr. Elliott’s third audit Finding turned on the interpretation of the word “evidence” in the License Agreements. (9/9/2011 Tr. 83:5-16, 96:12-25(Erk)).

5. There Is No Credible Evidence That ADK Ever Requested Foreign Tax Withholding Certificates from 4Kids Prior to the Audit

142. According to ADK, the ADK accounting office was responsible for ensuring that foreign withholding tax credits were claimed. (8/31/2011 Tr. at 37:13-16 (Shinoda)). Ms. Noriko Kubota, an ADK employee in the overseas licensing group, was responsible for informing the accounting department of the amount of foreign withholding taxes to claim a tax credit on. (Id. at 37:21-38:2).

143. In addition to ADK’s internal accounting office, ADK retained the services of an external accounting firm, Yasumori, to assist in the preparation and filing of its tax returns. (8/31/2011 Tr. 36:24-37:9 (Shinoda); 9/6/2011 Tr. 31:7-11, 31:16-24 (Hosaka)). Mr. Kasai, Licensor’s tax expert, described the Yasumori firm as “small” and “not well known.” (8/29/2011 Tr. 154:9-16 (Kasai)). ADK ceased its relationship with Yasumori in 2010. (8/31/2011 Tr. 37:7-12 (Shinoda); 9/6/2011 Tr. 32:4-5 (Hosaka)).

144. Ms. Kubota, the ADK employee responsible for informing ADK’s accounting department about foreign withholding taxes, testified that the ADK employees who would have requested foreign withholding tax certificates from 4Kids, if any requests were made, would be Mr. Doi, Mr. Shinoda, Mr. Sato and herself. (8/31/2011 Tr. 37:21-38:2 (Shinoda); 8/22/11 Dep. Tr. 42:20-43:25 (Kubota)). Ms. Kubota testified that she did not recall requesting foreign withholding tax certificates from 4Kids. (8/22/11 Dep. Tr. 44:16-24 (Kubota)); Ms. Kubota further testified that she did not recall whether Mr. Shino-da, Mr. Doi, or Mr. Sato ever personally requested 4Kids provide foreign withholding tax certificates or whether they ever asked her to make any such request. (8/22/11 Dep. Tr. 35:22-38:13 (Kubota)).

145. Mr. Shinoda provided inconsistent testimony concerning ADK’s requests for foreign withholding tax certificates. First, Mr. Shinoda testified in his Declaration that ADK made “numerous” requests for tax withholding certificates. (Shinoda Decl. ¶ 41). Mr. Shinoda then testified that he spoke to A1 Kahn about foreign withholding tax certificates in 2003/2004. (9/1/2011 Tr. 73:22-74:22 (Shinoda)). Next, Mr. Shinoda claimed, in contradiction to his deposition testimony, 33 that he requested foreign withholding tax certificates “every time” he met with Mr. Kahn. (9/1/2011 Tr. 76:21-77:17 (Shinoda)). Upon further questioning, Mr. Shinoda testified that it was not “every time.” (9/1/2011 Tr. 101:12-102:18 (Shinoda)).

146. Mr. Kahn testified that ADK “may” have “once or twice” requested tax certificates, although he could not say if those requests related to U.S. taxes paid by 4Kids itself (which are not in issue) or if they related to foreign taxes paid by *651 4Kids’ subagents. 34 (8/8/11 Dep. Tr. 272:5-14 (Kahn)).

147. Despite his alleged “numerous” requests for 4Kids to provide foreign withholding tax certificates, Mr. Shinoda admits that he never followed-up any request to Mr. Kahn in writing, either in an email or by letter. (9/1/11 Tr. 108:7-9 (Shino-da)).

148. ADK’s witnesses uniformly testified that no written request for foreign withholding tax certificates was between 2001 and 2009 had been located. 35 (9/1/11 Tr. 103:7-9 (Shinoda); 9/6/11 Tr. 35:3-6 (Hosaka); 9/8/11 Tr. 41:10-23 (Sugimoto); Kubota Tr. 124:8-125:4). ADK’s witnesses initially asserted that Exhibit T-65 evidenced a request for foreign withholding tax certificates, 36 although all admitted during the trial that this email was not a request for the withholding tax certificate, but instead related to a request from a foreign subagent, transmitted through 4Kids, for ADK to fill out a certificate of residency to avoid double taxation on income generated by the Italian subagent. (8/31/2011 Tr. 50:22-51:18, 53:17-54:2 (Shi-noda); 9/8/2011 Tr. 29:6-11 (Sugimoto); Ex. T-65; Ex. T-65A).

149.Mr. Foster testified that, while Li-censor, specifically ADK, had requested withholding certificates related to U.S. taxes, he is aware of no request for foreign tax withholding certificates prior to 2010. (Foster Deck ¶ 21). Similarly, Mr. Newborn testified that nobody at Licensor ever complained to him that certificates had not *652 been provided. (Newborn Deel. ¶ 99). Likewise, Ms. Kozmata testified that, to her knowledge, no one from ADK ever requested withholding tax certificates from 4Kids. (Kozmata Deck ¶ 18; 9/19/2011 Tr. 83:24-84:8 105:3-5 (Kozmata)).

150. Ms. Nowicki provided and circulated agendas for quarterly meetings between 4Kids and Licensor, and took notes at those meetings. (Nowicki Deck ¶¶ 29-30). Based on these meeting notes and agendas, Ms. Nowicki testified that there was no instance where the Licensor ever discussed, complained, or raised questions at those meetings about foreign withholding tax certificates. (Nowicki Deck ¶ 33; Ex. T-427 to Ex. T-434). There is no credible evidence that anyone from ADK ever complained to 4Kids about the type of evidence of withholding taxes that had been provided by 4Kids and/or 4Kids’ sub-agents to ADK under the License Agreements. (9/12/2011 Tr. 171:15-20 (Newborn); Newborn Deck ¶ 99). Likewise, there is no credible evidence that anyone from TV Tokyo ever complained to 4Kids that 4Kids was not providing adequate evidence of foreign withholding taxes pursuant to the License Agreements. (9/1/2011 Tr. 159:4-8 (Kawasaki); Newborn Deck ¶ 99).

151. Despite Mr. Shinoda’s assertion that he made requests of 4Kids to provide certificates in 2003/2004, he admits that neither he, nor anyone else at ADK, requested any change to the language of Paragraph 4(g) in connection with the 2008 Agreement. (8/31/2011 Tr. 59:9-14 (Shino-da); 9/1/2011 Tr. 78:23-79:9, 83:15-17 (Shi-noda)). Indeed, ADK did not suggest that the term “certificate” be added to Paragraph 4(g) of the 2008 Agreement. (8/31/2011 Tr. 59:9-11 (Shinoda)). As a result, the parties did not alter the provision governing withholding taxes between the 2001 and 2008 Agreements. (9/1/11 Tr. 83:15-84:2 (Shinoda); Ex. T-6 ¶ 4(g); Ex. T-ll ¶ 4(g)).

152. In view of the foregoing, there is no credible evidence that anyone at Li-censor ever asked anyone at 4Kids to provide them with foreign withholding tax certificates, either orally or in writing, at any time until Mr. Elliott’s audit in 2010.

6. There Is No Evidence That ADK Suffered Any Tax Related Injury

153. Between 2001 and 2009, ADK did not take any tax credits for foreign withholding taxes paid by Yu-Gi-Oh! sub-agents of 4Kids, but did claim tax credits with respect to withholding from other foreign income. (9/20/2011 Tr. 23:19-24:6 (Tokuhiro); 9/6/2011 Tr. 32:15-22 (Hosa-ka); 8/31/2011 Tr. 38:21-39:17 (Shinoda)).

154. ADK has not offered into evidence its complete tax returns for any of the years at issue. Without its entire tax returns, 4Kids’ expert was unable to determine whether ADK claimed any tax deductions for the foreign withholding taxes paid by Yu-Gi-Oh! subagents. (9/20/2011 Tr. 24:21-25:19 (Tokuhiro)). Licensor’s own tax expert testified that he did not review the tax returns of ADK, NAS, or TV Tokyo. (8/29/2011 Tr. 131:15-21 (Kasai)).

155. As stated by Licensor’s tax expert, without a review of the full ADK tax returns, it is impossible to determine whether or not ADK had reached its maximum foreign withholding tax credit limit for the years 2001 through 2009. (8/29/2011 Tr. 136:16-19 (Kasai)).

156. The Court is unable to determine (a) whether ADK took tax deductions for foreign withholding taxes paid by Yu-Gi-Oh! subagents or (b) whether ADK would have been eligible for additional foreign withholding tax credits for the years 2001 through 2009.

*653 157. Consistent with Mr. Tokuhiro’s testimony and experience, the evidence demonstrates, however, that ADK sometimes submitted documentation other than foreign withholding tax certificates in order to claim foreign withholding tax credits, as discussed below.

158. In his review of the foreign tax credits section of the portion of ADK’s tax returns admitted into evidence, Mr. Tok-uhiro determined that, between 2001 and 2009, ADK had claimed foreign tax credits for foreign source income unrelated to the Yu-Gi-Oh! license. (9/20/2011 Tr. 25:24— 26:3, 29:4-23 (Tokuhiro)). Mr. Tokuhiro observed in his review that, in at least three instances (in one tax return alone), ADK claimed foreign tax credits based on letters, rather than on the certificates, as evidence of proof of payment of taxes. (9/20/2011 Tr. 29:24-32:5 (Tokuhiro); Ex. T-260 at TVT_NAS0086960, TVT_NAS0087073, TVT_NAS0087075). One of the alternatives to the certificate submitted to the Japanese National Tax Authority to claim foreign withholding tax credits was a December 2, 2004 letter from 4Kids concerning money withheld on Yu-Gi-Oh! income earned in the U.S. (Ex. T-260 at TVT-NAS0086960).

159. Mr. Kasai similarly testified that, based on his review of the foreign tax section of one of ADK’s tax returns for the year 2004, ADK had claimed foreign withholding tax credits based on the same letters identified by Mr. Tokuhiro. (8/29/2011 Tr. 141:9-12, 141:23-143:18, 148:7-17, 148:24-151:8 (Kasai); Ex. T-260 at TVT_NAS0086960, TVT_NAS0087073, TVT_NAS0087075). Another letter, from a Spanish company, stated that “the annual certificates for any given year take a long time to process [thus] the governmental official certificate usually come within the first six months of the following year.” (Ex. T-260 at TVT_NAS0087073).

160. Ms. Kubota testified that proof of payment of withholding taxes includes, but is not limited to, the certificate. 37 (8/22/11 Dep. Tr. 91:2-93:2 (Kubota)).

161. In December 2004, when the U.S. withholding tax certificates were not yet available, a member of ADK’s accounting department directed Ms. Kubota to “request” from 4Kids “something in lieu of the proof of tax withholdings’ (payment certificate or the like),” (Ex. T-152; Ex. T-152-A; 8/22/11 Dep. Tr. 89:20-90:2, 90:21-96:7, 96:24-97:11 (Kubota)). In an email dated December 2, 2004, Ms. Kubota requested that 4Kids provide a “substitute for the withholding certificate.” (8/22/11 Dep. Tr. 97:12-100:10 (Kubota); Ex. T-153; Ex. T-153-A, Ex. T-154). Ms. Kubo-ta confirmed that the “substitute for the withholding certificate” provided by 4Kids, as per ADK’s request, was the letter from 4Kids relating to U.S. withholding taxes included in ADK’s 2004 tax return. (8/22/11 Dep. Tr. 101:3-8, 102:2-103:4 (Ku-bota); Ex. T-152A; Ex. T-153A; Ex. T-154; Ex. T-260 at TVT_NAS0086959). Ms. Kubota further testified that she does not believe that 4Kids ever provided ADK with the Form 1042 U.S. certificate related to these credits. (8/22/11 Dep. Tr. 144:18-25 (Kubota)).

162. Despite the knowledge of ADK’s accounting department that documents other than the certificates themselves could be used by ADK to claim foreign withholding tax credits, there is no documentary evidence that ADK ever asked 4Kids to provide letters or other documentary alternative to the tax certificates as *654 proof of payment of foreign withholding taxes by 4Kids’ subagents in order to file for the credits in a timely manner.

163. In the course of the audit, certificates reflecting $1,152,049.89 in foreign withholding tax credits were provided to Mr. Elliott. (Ex. T-14).

164. Although there is a one year right under Japanese tax law to amend a corporate tax return and a five year opportunity to petition to amend a corporate tax return, ADK elected not to amend or petition to amend any tax return or file the certificates provided to Mr. Elliott. (9/6/2011 Tr. 34:13-20 (Hosaka)).

165. Following Mr. Elliott’s audit, 4Kids, through further inquiries and review of its files, was able to locate $880,680.14 worth of additional certificates. (Foster Decl. ¶ 38; 9/12/2011 Tr. 171:5-10 (Newborn)). These certificates have been provided to ADK. (9/12/2011 Tr. 171:5-10 (Newborn)). There is no evidence that ADK attempted to amend or petition to amend any tax return or file these certificates in order to claim foreign tax credits. 38

166. Both tax experts agree that if ADK had in its filed tax returns claimed tax credits unrelated to Yu-Gi-Oh!, ADK might be granted a petition to amend its tax returns to claim Yu-Gi-Oh! related tax credits within the five year statute of limitations. (8/29/2011 Tr. 125:3-10 (Kasai); 9/20/2011 Tr. 36:4-37:13 (Tokuhiro)).

167. According to Mr. Tokuhiro, had ADK elected to petition to amend its tax returns for the years 2006, 2007, 2008, or 2009, and the Japanese National Tax Authority agreed with their petition, ADK could have recovered credits of approximately $1.1 million. (9/20/2011 Tr. 36:4-25 (Tokuhiro)).

168. According to Mr. Tokuhiro, had ADK timely filed a petition to amend its tax returns prior to the fifth anniversary of the original filing date for the years 2005 through 2009, and the Japanese National Tax Authority agreed with its petition, ADK could have recovered approximately $1.6 million in foreign tax credits. (9/20/2011 Tr. 37:1-5 (Tokuhiro)).

D. Finding No. 4: Post-June 2008 Home Video Revenue

169. In his fourth audit Finding, Mr. Elliott found that 4Kids had continued to divide the 20% home video royalty between the parties during the second half of 2008. Mr. Elliott noted that, under the 2008 Agreement, effective as of July 1, 2008, Paragraph l(b)(iii) had been amended to provide that, if 4Kids exercised the home video rights itself, the entire home video royalty should be paid to Licensor. (Ex. T-14 at 7-8). Finding 4 was included in Mr. Shinoda’s December 20, 2010 letter to 4Kids. (Ex. T-18 at 1, 3).

170. Finding 4 was premised upon the application of Paragraph l(b)(iii) of the 2008 Agreement, which applies “[I]f 4Kids exercises the Home Video Rights ... itself.” (Ex. T-14 at 7-8; Ex. T-ll; 8/29/2011 Tr. 166:25-167:7 (Elliott)).

171. 4Kids never disputed Finding 4, and, in fact, agreed to pay the entire amount of the claim ($26,894.27). As Mr. Newborn explained in his testimony, this Finding resulted from an error in 4Kids’ *655 accounting department following the adoption of the 2008 Agreement, which implemented the shift from the 50/50 split of home video revenue to the requirement that the entire twenty percent be remitted to Licensor. (Newborn Decl. ¶¶ 66 & n.32, 130).

172. Sometime between Mr. Shinoda’s December 20 letter and the filing of the Complaint in this action on March 25 (concurrent with the purported termination of the 2008 Agreement), Licensor dropped Finding 4. Mr. Shinoda testified that, “after further consideration, the [Yu-Gi-Oh!] Consortium has decided not to pursue this audit claim further.” (Shinoda Decl. ¶ 44). There is no mention of Finding 4 in the Complaint filed by Licensor on March 25, 2011. (See Adv. Pro. No. 11-02225, Docket No. 1).

173. Prior to the filing of the Complaint, Licensor never communicated to 4Kids that Licensor had decided not to pursue Finding 4. (8/31/2011 Tr. 34:14-21 (Shinoda)).

E. Finding No. 5: Costs of Third-Party Audits 39

174. In his fifth Finding, Mr. Elliott found that 4Kids had improperly deducted 50% of the cost of various third-party audits from Licensor’s share of royalties, amounting to $105,111.20 in improper deductions. (Ex. T-14 at 8-9; 8/29/2011 Tr. 202:9-12 (Elliott)). According to Mr. Elliott, although 4Kids had informed him that it had obtained approval for these deductions — which were half the cost of third-party audits conducted on 4Kids’ sublicensees — the fact that he did not review written authorization for these deductions led him to conclude that such costs were unauthorized by Licensor. (Elliott Decl. ¶ 39; Ex. T-14 at 8-9). He therefore found that any deductions by 4Kids for third-party costs were impermissible under the License Agreements. (Elliott Decl. ¶ 40).

175. It is customary in the licensing industry to conduct audits of licensees. (Nowicki Decl. ¶ 22). It is typical to conduct these audits after a significant term of the license agreement has passed but before the agreement has concluded, to ensure collection of any audit findings. (Id.).

176. Beginning in 2005, 4Kids decided to audit some of the Yu-Gi-Oh! sublicen-sees. (Id.; Newborn Decl. ¶ 111). All audits of the Yu-Gi-Oh! licensees were conducted by external auditors. (Nowicki Decl. ¶ 23; 9/20/2011 Tr. 117:17-25 (Foster)). On January 5, 2005, Ms. Nowicki sent an email to Ms. Kubota outlining 4Kids’ procedures for conducting sublicen-see audits. (Ex. T-209; Nowicki Decl. ¶ 24). The procedures expressly provided that “4Kids will recoup 50% of the audit costs from Licensor’s share of the quarterly royalty revenues.” (Ex. T-209 at 4KIDS-0041378).

177. Ms. Kubota confirmed that she received the document outlining 4Kids’ procedures for conducting licensee audits and *656 that the document sent by Ms. Nowicki specified that Licensor would share 50% of the cost of third-party audits. (Ex. T-209; 8/22/11 Dep. Tr. 125:20-126:17 (Kubota)). Ms. Kubota testified that, despite the clear language of the document, she was uncertain whether or not this document signified that costs of third-party audits would be split “as a matter of fact” or whether this document merely expressed 4Kids’ “desire to split” these costs. (8/22/11 Dep. Tr. 126:18-127:2 (Kubota)). However, Ms. Kubota has no “specific recollection” of inquiring of Ms. Nowicki or anyone else at 4Kids as to the intent behind the outlined procedure and has seen no document reflecting the same. (8/22/11 Dep. Tr. 126:18-127:9, 128:9-17 (Kubota)). Similarly, Ms. Nowicki did not recall any followup discussion with Ms. Kubota. (9/15/2011 Tr. 46:20-47:7 (Nowicki)).

178. 4Kids’ practice of treating the audit costs as off-the-top costs is consistent with licensing industry practice, where the costs of third-party audits are shared in proportion to the recoveries. (Newborn Deck ¶ 113).

179. Following 4Kids’ provision of its third-party audit procedure to ADK in January 2005, 4Kids initiated, with Li-censor’s approval, various audits of Yu-Gi-Oh! licensees. (Newborn Decl. ¶ 111). 4Kids sought Licensor’s approval of each individual audit and “never” conducted any Yu-Gi-Oh!-related audit without Li-censor’s approval. (9/15/2011 Tr. 104:15-22 (Nowicki)).

180. For example, in 2007, 4Kids requested Licensor’s approval to conduct six licensee audits. (Ex. T-31). In the email request for approval to conduct the most pressing of the six proposed audits, 4Kids explicitly stated that Licensor’s “confirmation” was required before the audit was initiated because “the Licensor is responsible for sharing in the costs of audits.” (Ex. T-31). Licensor’s response evidences that Licensor understood that costs would be shared, because in approving this audit, Mr. Doi 40 of ADK wrote, “we need TV Tokyo’s confirmation because auditing involves cost.” (Ex. T-31). Mr. Sugimoto, who was copied on this email, confirmed that Mr. Doi approved this audit and that Mr. Doi understood in approving this audit that there would be associated costs. (9/8/2011 Tr. 44:10-25, 45:23^16:4 (Sugimo-to)).

181. The email also clearly expressed to Licensor that 4Kids would “move forward with [the one approved audit] but will hold for approval of the others.” (Ex. T-31). Mr. Sugimoto, who was copied on this email, confirmed that 4Kids did not initiate the other suggested audits because Licensor’s approval was required. (9/8/2011 Tr. 45:23-46:4 (Sugimoto)).

182. In a separate email in 2007, Ms. Nowicki asked for Licensor’s approval to conduct another audit. (Ex. T-101). In responding to this email, Mr. Hosaka wrote, “please proceed licensee audit you proposed [sic]. [W]e fully understand your request.” (Ex. T-101). Mr. Hosaka confirmed at trial that he was aware that 4Kids conducted third party audits and that he approved some of these audits. (9/6/2011 Tr. 42:15-20 (Hosaka)).

183. In another email in 2010 requesting Licensor’s approval of two proposed audits, 4Kids explicitly conveyed, again, that the decision to conduct audits rested *657 with Licensor. (Ex. T-68). In this email, 4Kids wrote, “[ultimately, it is your decision if you do not wish to audit these licensees, but we believe we stand to make additional revenue off of these licensees and it will be worth our while.” (Ex. T-68 at TVT_NAS0036548). In response to questioning about this email, Ms. Nowicki testified that the proposed audits were not conducted because Licensor had not approved them. (9/15/2011 Tr. 104:10-22 (Nowicki)).

184. There is no dispute that Licensor understood that audits involved costs and thus Licensor had final approval over the initiation of audits. (9/6/2011 Trial Tr. at 42:15-20 (Hosaka); 9/8/2011 Trial Tr. at 48:6-9 (Sugimoto)). As Mr. Sugimoto explained:

Because when usually 4Kids ask for approval it means something associated with cost. If we say yes, then, you know, costs would be spread fifty/fifty. So that’s why we have to be very careful with when we say yes.

(9/8/2011 Tr. 48:1-5 (Sugimoto)).

185. Ms. Nowicki, 4Kids’ executive manager who was in charge of the Yu-Gi-Oh! brand on a day-to-day basis, does not recall any instance in which Licensor ever complained about, questioned, or commented on the licensee audits or the cost of those audits. (Nowicki Deck ¶ 29). Nor do her meeting notes or meeting agendas reflect any such complaints, questions or comments. (Nowicki Deck ¶¶ 29-30). Similarly, Mr. Hosaka testified that he was not aware of any instance where ADK complained about sharing the cost of third-party audits. (9/6/2011 Tr. 44:17-45:6 (Hosaka)).

186. Licensor attempted to elicit testimony from Ms. Nowicki to the effect that, because audits are not common in Japan, Licensor did not understand 4Kids’ audit procedure; Licensor relied on an email concerning approval of a third-party audit settlement, not a third-party audit proposal. (Ex. T-210). According to Ms. Now-icki, this document does not demonstrate that Licensor was confused about third-party audits, but that they were confused about a specific issue related to a specific settlement. (9/15/2011 Tr. 59:5-10; 60:5-12 (Nowicki)). Licensor further attempted to elicit testimony that a suggestion had been made that 4Kids not seek Licensor’s approval of audit settlements because Li-censor did not understand the audit procedure. Ms. Nowicki explained that this was not consistent with her recollection or review of the document, and correctly observed that, in the email, Ms. Hozumi was merely suggesting that 4Kids specifically explain in greater detail its recommendations for audit settlements. (Id. at 105:13-106:1).

187. There is no dispute that Licensor had final authority over the approval of audit settlements. 4Kids also informed Li-censor of the audit findings and the settlement offers made by the licensees. (Now-icki Deck ¶28; Ex. T-32; Ex. T-69). 4Kids never accepted a settlement without Licensor’s approval. (9/15/2011 Tr. 106:19-24 (Nowicki)). Licensor understood that they had approval over third party settlements. (9/8/2011 Tr. 48:18-24 (Sugimoto)).

188. The third party audits of 4Kids sublicensees recovered more than $750,000 in additional royalties, which were split SO-SO with Licensor. (9/6/2011 Tr. 45:7-20 (Hosaka)).

189. Mr. Elliott and Licensor have asserted that a written amendment was necessary to codify that Licensor and 4Kids would split the costs of third-party aqdits, and thus email approvals of audits were insufficient to deduct the shared cost from Licensor’s share of royalties. (Shinoda *658 Decl. ¶ 47; 8/31/2011 Tr. 67:1-16 (Shino-da); Ex. T-14 at 8-9; Elliott Decl. ¶ 40). However, there is evidence that Licensor agreed, by email, to split other expenses, such as those associated with the Yu-Gi-Oh! style guide. (8/31/2011 Tr. 67:17-25 (Shinoda); 9/21/2011 Tr. 89:22-90:17, 91:5-16 (Foster)).

190. As Mr. Foster explained, it is impossible to understand all issues and costs that will arise when an agreement is entered into, and thus, it is common for additional costs not contemplated by the agreement to arise. (9/21/2011 Tr. 92:5-16 (Foster)). In those instances, depending on the nature of the cost, 4Kids will attempt to obtain verbal approval (followed-up with an email) or something in writing. (Id.).

191. The sole basis of Mr. Elliott’s Finding 5 is that the License Agreements did not speak to the deduction of third party audit costs. (Ex. T-14 at 8-9). In the course of his audit, Mr. Elliott sent an email to Mr. Sugimoto stating, “[p]er our earlier conversation, I believe you indicated your (sic) someone in your home office may have approved [the deduction of third party audit costs]. Can you confirm this?” (Ex. T-100). Mr. Elliott provided inconsistent testimony as to whether or not Mr. Sugimoto had told him if these audits had been approved. During his deposition, Mr. Elliott testified that he did not recall if Licensor had told him if these audits had been approved. (8/29/2011 Tr. 206:2-8 (Elliott)). However, at trial, Mr. Elliott testified that Mr. Sugimoto informed him that these audit costs had not been approved by Licensor. (8/29/2011 Tr. 204:4-9, 205:18-25 (Elliott); 8/30/2011 Tr. 85:2-13 (Elliott)). Mr. Sugimoto testified that it was ( Licensor’s understanding that Li-censor had final approval over third-party audits, although he did not know whether or not he told Mr. Elliott about Licensor’s approval authority. (9/8/2011 Tr. 53:19-22, 57:10-19 (Sugimoto)).

192. Mr. Elliott was shown various email communications between the parties in which Licensor agreed in writing to the initiation of third-party audits, one of which specifically referenced that the audit would involve costs to be paid by Licensor. (Ex. T-31; Ex. T-101). Mr. Elliott agreed that these emails, “appear to be some support” that audits were approved by Li-censor, but explained that Licensor had not provided copies of these emails nor did they tell him about these emails. (8/30/2011 Tr. 97:11-21 (Elliott) 8/29/2011 Tr. 208:1-3, 211:8-10). He testified that had Licensor provided him with a copy of Exhibit T-31, that email would have “impacted [his] conclusion,” and he would have discussed the issue with Mr. Sugimoto. (8/29/2011 Tr. 207:21-25 (Elliott)). He further testified that, had Licensor provided him with copies of Exhibits T-31 and T-101, he would have spoken to Mr. Sugimo-to and been “guided by his decisions as to whether or not to assert this audit claim with respect to third-party audits.” (8/30/2011 Tr. 86:24-87:10 (Elliott)). However, Mr. Elliott evaded answering whether, in light of Exhibits T-31 and T-101, Mr. Sugimoto’s statement to him that these audits were not approved was inaccurate. (8/30/2011 Tr. 101:20-103:5 (Elliott)).

193. Mr. Elliott testified that all of the deductions for third-party audit costs were detailed on the quarterly participation statements. (8/29/2011 Tr. 202:13-16 (Elliott)). Mr. Elliott admitted that, despite the inclusion of these costs on the participation statements, he was not aware of any evidence that Licensor had ever objected to these deductions, and indeed, he never asked Licensor whether they had objected to these deductions prior to 2010. (Id. at 202:21-24, 203:25-204:3).

*659 194. Mr. Erk, Licensor’s royalty inspection expert, provided testimony as to Mr. Elliott’s Finding on the deduction of third-party audit costs. Mr. Erk testified that he agreed with Mr. Elliott’s Finding that the sharing of third-party audit costs had not been approved by the Licensor. (9/9/2011 Tr. 89:7-12(Erk)). But he admitted that, in the course of reaching his conclusions, like Mr. Elliott, he did not look at any emails between Licensor and 4Kids. (Id. at 89:24-90:23). Mr. Erk also admitted that all deductions for the shared costs of third-party audits were listed on the quarterly participation statements. (Id. at 90:24-91:2). And, despite blessing Mr. Elliott’s Finding, Mr. Erk admitted that he did not know whether or not before 2010 Licensor had ever objected to 4Kids charging them half of the third-party audit costs. (Id. at 91:3-7).

195. Based on the foregoing, the evidence establishes that there was a documented course of conduct between the parties whereby 4Kids would obtain Li-censor’s approval for the initiation of third-party audits, and that Licensor understood, in approving these audits, that it would share in the costs.

F. Finding No. 6: Errors & Omissions Insurance Allocation

196. In his sixth audit Finding, Mr. Elliott found that 4Kids overcharged Li-censor for its share of the errors and omissions (“E & O”) insurance purchased by 4Kids. (Ex. T-14 at 9-11; Elliott Deck ¶¶ 42-47).

197. Paragraph 13 of each of the License Agreements requires 4Kids to obtain E & O insurance on behalf of Licensor. (Ex. T-6 ¶ 13; Ex. T-ll ¶ 13). The License Agreements allow 4Kids to deduct the cost of E & O insurance from Li-censor’s share of the Gross Income, up to a maximum of $15,000 per year. If other television series and movies are insured under the same policy, the License Agreements provide that Licensor’s share of the premium shall be “computed on a pro-rata basis.” (Ex. T-6 ¶ 4(c); Ex. T-ll ¶ 4(c)).

198. Since 2001, 4Kids has purchased E & O insurance for the Yu-Gi-Oh! properties on behalf of both 4Kids and Li-censor. 4Kids has charged Licensor the maximum amount ($15,000) each year from 2001 to 2009. (Newborn Deck ¶¶ 118-19; Foster Deck ¶¶ 45-46; Elliott Deck ¶44; Shinoda Deck ¶ 48).

199. In 2010, 4Kids’ insurance policy listed 130 “additional insured” properties, seven of which were related to Yu-Gi-Oh! (Elliott Deck ¶45; Shinoda Deck ¶ 48; Hosaka Deck ¶ 55). However, this number included a number of inactive properties. (Newborn Deck ¶ 120).

200. Mr. Elliott never asked 4Kids for a breakdown of which properties listed on the policy were active and which were inactive. (8/29/2011 Tr. 212:8-214:10 (Elliott)). Nor did he attempt to (i) determine whether the inclusion of inactive properties affected 4Kids’ insurance premium or (ii) review the terms of 4Kids’ insurance policy. (8/29/2011 Tr. 214:11-15 (Elliott)).

201. Mr. Newborn and Mr. Foster both testified that maintaining E & O insurance on inactive properties account for a de minimis marginal increase in the cost of 4Kids’ insurance premiums. When 4Kids inquired with its insurance carrier about dropping inactive properties, the carrier recommended that 4Kids “keep any discontinued names on the list.” (Newborn Deck ¶ 120; Foster Deck ¶ 47; Ex. T-438).

202. The parties disagree as to how the “pro rata” share should be determined, i.e., what method should be used to calculate the percentage of the premium alloeat- *660 ed to Licensor. During trial, three methods were suggested:

1. 4Kids’ Methods

203. 4Kids determined the allocation percentage by dividing its Yu-Gi-Oh!-de-rived revenue for a given year by its total company revenue. (Elliott Decl. ¶ 44). Using this formula, 4Kids allocated between 16% and 40% of its E & 0 insurance premiums to Licensor between 2001 and 2009, and for each year this amount exceeded the $15,000 maximum set out in the License Agreements. (Id.). In each case, the amount allocated to Licensor was then reduced by 4Kids to the $15,000 maximum allowed under the agreement, or approximately 11% of the total premium. (Id., Ex. T-14 at 9-11; Newborn Decl. ¶ 119; Foster Decl. ¶ 46).

204. Both Mr. Newborn and Mr. Foster testified that they believed Licensor’s share was justified because the Yu-Gi-Oh! property has always accounted for more than 11% of 4Kids’ revenue. (Newborn Decl. ¶ 119; Foster Decl. ¶ 46).

205. Similarly, Licensor’s expert, Arthur Erk, testified that he would have calculated the allocation percentage by dividing 4Kids’ Yu-Gi-Oh!-derived revenue by the revenue derived from its other insured properties. (Ex. T-200 at 6-7; 9/9/2011 Tr. 91:8-92:10(Erk)). Mr. Erk thus disagreed with Finding No. 6.

206. 4Kids submitted a spreadsheet showing a detailed analysis of the E & O insurance costs. (Ex. T-477). The analysis shows that, for every year except one, Licensor’s share of the E & O insurance exceeded $15,000 when calculated using 4Kids’ revenue basis. (Id.). Only during a single year — from April 2001 to March 2002 — does the weighted revenue method result in an allocated premium less than the $15,000 charged by 4Kids. During that year, the weighted revenue method yields an allocated premium of $5,602.99, or $9,397.01 less than the amount charged by 4Kids. (Id.).

207. Another method proposed by 4Kids is to divide the number of Yu-Gi-Oh! properties by the total number of active properties maintained by 4Kids. Mr. Newborn testified that, since Yu-Gi-Oh! always accounted for more than 11% of 4Kids’ active properties, that there would have been no refund due to Licensor using this methodology. (Newborn Decl. ¶ 119; Foster Decl. ¶ 46).

2. Mr. Elliott’s Method

208. Mr. Elliott determined the allocation percentage by dividing the number of Yu-Gi-Oh! properties listed on 4Kids’ insurance policy by the total number of insured properties. (Elliott Decl. ¶ 46). Basing his calculation on the number of insured properties listed on 4Kids’ 2010 policy, Mr. Elliott calculated that the appropriate allocation percentage was approximately 5.4%. (Id.). Applying this allocation percentage, without any knowledge of how many additional insureds were listed on 4Kids’ E & O policies in years prior to the 2010 policy year, Mr. Elliott concluded that 4Kids owed Li-censor a refund of $67,328.45 for the nine-year period in which 4Kids had deducted a total of $135,000 from Li-censor’s share of Gross Income. (Ex. T-14 at 10-11; Elliott Decl. ¶ 46).

209. In neither his audit report nor his declaration did Mr. Elliott offer an explanation as to why he determined that the pro rata share should be calculated in the manner that he suggests. (Ex. T-14 at 10-11; Elliott Decl. ¶ 46).

210. Nor, as noted above, did Mr. Elliott conduct any investigation as to the terms of 4Kids’ insurance policy or the impact, if any, of adding inactive properties to the list of additional insureds. Furthermore, Mr. Erk wrote in his expert *661 report that this method “would have been more representative of the allocation of the insurance costs to the licensor companies covered under the insurance policies.” (Ex. T-200 at 6-7; 9/9/2011 Tr. 91:8-92:10). In essence, Mr. Erk disagreed with Mr. Elliott’s sixth audit Finding.

G. Finding No. 7: Bank Charges

211. In his seventh audit Finding, Mr. Elliott suggested that 4Kids had taken $4,270.58 in deductions from Licensor’s share of Gross Income for bank charges that were not authorized deductions under the License Agreements. (Ex. T-14 at 12; Shinoda Decl. ¶ 49).

212. Mr. Newborn testified that 4Kids typically deducts these bank charges to cover wire transfer fees and similar expenses, but that Finding 7 did not constitute a material dispute between the parties. (Newborn Decl. ¶ 130). 4Kids does not dispute Mr. Elliott’s Finding. (Elliott Decl. ¶ 48; 9/21/11 Tr. 23:10-19, 173:5-18 (Foster)).

H. Finding No. 8: Miscellaneous Costs

213. In his eighth audit Finding, Mr. Elliott suggested that 4Kids had deducted $43,544.59 in miscellaneous costs that were not authorized under the License Agreements. (Ex. T-14 at 12-13). This amount was for certain style guide art and dubbing expenses and fees that 4Kids had, in Mr. Elliott’s view, improperly charged to Li-censor. Id.; (Shinoda Decl. ¶ 50).

214. In his October 11, 2010 draft audit report, Mr. Elliott identified four items, totaling $132,151.69, that he concluded were not authorized by the License Agreements. (Ex. T-13 at 11-12). According to the final audit report, Ms. Kozmata “provided written support for these deductions.” Ex. T-14 at 13. Mr. Elliott then showed these documents to Mr. Sugimoto.

215. After Mr. Sugimoto’s review of the four items, Mr. Elliott concluded that Licensor was due a total refund of $43,544.59 for costs deducted improperly pursuant to the License Agreements. (Ex. T-14 at 12-13). Mr. Sugimoto had approved two of the deductions and rejected another. As for the fourth deduction, which was for Yu-Gi-Oh! style guide art costs, Mr. Sugimoto approved half of the cost. Mr. Elliott wrote that, according to Mr. Sugimoto, the style guide art costs were “ ‘top-off costs” that are divided evenly between 4Kids and Licensor. (Ex. T-14 at 12-13).

216. There was no written amendment to the License Agreements related to the division of the style guide art costs. (9/21/2011 Tr. 91:5-13 (Foster)).

217. According to Mr. Newborn, Finding 8 is not a material dispute between the parties, given that 4Kids has offered to pay substantially all of the amount ($39,-000). (Newborn Decl. ¶ 130).

I.Finding No. 9: Material & Courier Costs

218. In his ninth audit Finding, Mr. Elliott suggested that 4Kids owed Li-censor $247,771.88 in material and courier costs incurred between 2001 and 2010. (Ex. T-14 at 13; Elliott Decl. ¶ 50).

219. Under the License Agreements, Licensor is obligated to send certain materials to 4Kids with respect to each television episode, including a Digital Beta NTSC master tape of each episode, along with music effects, a script, and music cues. 4Kids, in turn, is obligated to reimburse Licensor for the “actual cost” of such materials, including courier costs. (Ex. T-6 ¶ 5(a); Ex. T-ll ¶ 5(a)). However, prior to October 15, 2010, Licensor had never sent any invoice concerning material and courier costs to 4Kids, any notice con *662 cerning these costs, any request that these costs be reimbursed, or any complaint that these costs had not been paid. (Foster Decl. ¶ 41; 9/6/2011 Tr. 50:10-58:18 (Hosa-ka); 9/8/2011 Tr. 39:6-22 (Sugimoto)).

220. Mr. Foster testified that 4Kids does not usually pay material and courier costs under its license agreements, and that it does not have a practice of affirmatively requesting invoices for such costs from its licensors. Furthermore, Mr. Foster testified that it would be “impossible” for 4Kids to track whether it was being properly invoiced for the various costs it is obligated to pay under the hundreds of contracts to which it is a party. (Foster Decl. ¶¶ 41-42; 9/21/2011 Tr. 100:14-101:10, 9/20/2011 Tr. 180:17-182:1 (Foster)).

221. During the course of his audit, Mr. Elliott discovered that the material and courier costs had never been invoiced to 4Kids. (Elliott Decl. ¶ 50). At Mr. Elliott’s suggestion, Mr. Hosaka directed his associate Tammy Kusama to prepare an invoice for the material and courier costs. (Hosaka Decl. ¶¶ 57-58). Ms. Ku-sama reviewed ADK’s records and “calculated” the amount reflected on the invoice based on the average material and delivery costs. (Hosaka Decl. ¶ 58). The estimated costs were based on the period from the inception of the License Agreements to September 2010. (Elliott Decl. at ¶ 50). The costs were then converted from Japanese yen to American dollars using the exchange rate in effect at the time the invoice was prepared, which was early October 2010, rather than the exchange rates in effect when the materials were actually delivered to 4Kids. (Hosaka Decl. ¶ 58; 9/6/2011 Tr. 47:22-48:15 (Hosaka); 9/8/2011 Tr. 40:10-13 (Sugimoto)).

222. According to an analysis done by 4Kids’ Accounting Department, the prevailing exchange rate in October 2010 was the lowest yen-to-dollar rate during the 2001 to 2010 time frame. (Ex. T-270 at 4KIDS-0060156). Licensor introduced no evidence that disputes 4Kids’ analysis of the applicable exchange rates.

223. On October 15, 2010, Mr. Hosaka sent the invoice to 4Kids, consisting of a one-page chart purporting to show material and courier costs for over 800 Yu-Gi-Oh! episodes, over a nine-year period, totaling $247,771.88. The invoice only included backup documentation regarding the then-recently-delivered episodes for the Yu-Gi-Oh! 5D series. However, it did not include any backup documentation for the costs associated with the Yu-Gi-Oh! Duel Monsters and Yu-Gi-Oh! GX series, comprising approximately 400 episodes, and, notably, it also included charges for 83 episodes “scheduled to deliver from ADK” to 4Kids in the future. (Ex. T-29; Newborn Decl. ¶ 123; 9/6/2011 Tr. 46:2-18, 47:3-21 (Hosaka)).

224. Mr. Hosaka admitted that the costs reflected in the October 15 invoice did not reflect “actual” costs, but were based on the average costs of such materials. (9/6/2011 Tr. 46:19-47:2 (Hosaka); Hosaka Decl. ¶ 58).

225. Mr. Elliott took ADK’s representation that it was owed $247,771.88 and included that figure in his final audit report. Mr. Elliott testified that he took ADK’s calculation at “face value” and did not ask for any supporting documentation. He further testified that he understood at the time he included Finding 9 in his audit report that the numbers were based on estimated costs and not actual costs. (8/29/2011 Tr. 217:1-219:6 (Elliott); 8/30/2011 Tr. 96:22-97:4 (Elliott); Ex. T-14).

226. On several occasions, 4Kids requested that ADK or its counsel provide 4Kids with additional information regard *663 ing the material costs. (Newborn Decl. ¶ 124; Ex. T-22; Ex. T-269; Ex. T-270; 9/6/2011 Tr. 48:16-52:15 (Hosaka)). For example, in a letter dated December 29, 2010, Mr. Kahn wrote: “[T]here are no invoices or other back up information to support about ¥14 million of material costs and courier costs.... Please advise whether these invoices and other records exist. If ADK has such invoices and other information, please send it to us at your earliest convenience.” (Ex. T-22).

227. In an email dated January 14, 2011, Mr. Newborn offered that 4Kids would pay such material costs and courier costs on the more than 500 Yu-Gi-Oh! episodes delivered by ADK to 4Kids over the ten-year relationship without regard to the statute of limitations and without requiring ADK to provide documentation of the actual material costs and courier costs if such documentation could not be located. He asked Licensor to (1) explain the 10% “management fee” included in the invoice sent regarding material costs for Yu-Gi-Oh! 5D; (2) explain why the courier costs had been charged for 123.2 episodes; 41 and (3) justify the exchange rate used in the invoice. Mr. Newborn included a chart prepared by 4Kids’ accounting department showing that the ¥80 per dollar exchange rate apparently used by Licensor was, as of January 14, 2011, the lowest (i.e., least favorable to 4Kids) in recent history, and he suggested that it would be more appropriate to use the exchange rates in effect when the episodes were delivered. (Ex. T-270).

228. Mr. Newborn sent a follow-up email on February 28, 2011, again offering to resolve the material costs if Licensor would provide answers to the questions posed in Mr. Newborn’s January 14 email. (Ex. T-269).

229. In a letter dated March 4, 2011, Licensor’s counsel stated with respect to the material costs that, “[a]s with all the other claims, without a larger commitment by 4Kids to resolve all outstanding issues, it is not worth the time to track down the individual invoices relating to this single claim.” (Ex. T-25 at 2).

230. At trial, Mr. Hosaka testified that Licensor never provided any backup documentation to 4Kids concerning the Yu-Gi-Oh! Duel Monsters and Yu-Gi-Oh! GX series. He also testified that ADK currently has such documentation in its possession. (9/6/2011 Tr. 52:2-53:18 (Hosa-ka)).

231. Mr. Foster testified that if 4Kids had received proper backup documentation to substantiate the material and courier costs invoice, 4Kids would have paid the invoice in the normal course of business. Mr. Foster also testified that as the CFO of a public company, and given the internal accounting controls in place, he would not have been able to pay the material costs without having the proper supporting documentation. (9/20/2011 Tr. 177:15-178:5, 179:15-182:1 (Foster)).

232. Licensor’s expert, Mr. Erk, submitted a report in which he stated that “Mr. Elliott’s inspection revealed that 4Kids had improperly shifted [the material and courier] costs to [Licensor].” (Erk Report, Ex. T-200 at 7). But at trial, Mr. Erk testified that, upon further reflection, 4Kids had done nothing improper with respect to the material costs. He testified that he would have handled the issue differently than Mr. Elliott, and would not *664 have included the material costs as an audit claim. Mr. Erk also testified that there was nothing improper about 4Kids’ request for additional documentation regarding the material costs, and that asking for such documentation would be the logical and reasonable thing to do. (9/9/2011 Tr. 92:19-95:1 (Erk)).

VI. ADK’s Purported Termination of the 2008 Agreement

A. The 2008 Agreement’s Termination Provision

233. Paragraph 12(a) of the 2008 Agreement provides, in relevant part:

If either party breaches any warranty or other material provision of this Yu-Gi-Oh! Agreement and does not cure such breach within ten (10) business days of the breaching party’s receipt of a written notice of such breach from the non-breaching party, then at any time during the continuance of such default, the non-breaching party may, in addition to any other rights the non-breaching party may have at law or in equity, terminate this Agreement effective as of the date of the breaching party’s receipt of a written notice from the non-breaching party notifying the breaching party of such termination.

(Ex. T-ll).

234. Paragraph 15(c) of the 2008 Agreement provides, in relevant part:

All notices, requests, consents and other communications hereunder shall be in writing and shall be sent by express mail, or telefax with a follow up copy by express airmail to the parties at their addresses first above written.... Notice shall be deemed received upon actual receipt or when such receipt has been refused.

(Ex. T-ll).

B. Mr. Elliott’s Preliminary Audit Findings

235. Shortly after being retained in January 2010, Mr. Elliott wrote an email to Mr. Hosaka and Mr. Sugimoto in which he posed questions regarding ADK’s interpretation of the License Agreements. 42 Mr. Elliott noted that, under the 2001 Agreement, the home video royalty had been divided evenly between the parties, and that the provision had been amended in the 2008 Agreement to provide that the entire home video royalty be paid to Li-censor when 4Kids was exercising the home video rights itself. Mr. Elliott, noting that there was no effective date provision in the 2008 Agreement, questioned whether this change was retroactive to 2001, in which case Licensor would be entitled to an additional $4.3 million in home video royalties. (Ex. T-89).

236. Mr. Sugimoto responded to Mr. Elliott’s email, stating that “both ADK and 4Kids were assuming that the effective date was at the time of the signing of the [2008 Agreement]. Legally we may be able to claim the money, but ethically [it] may be difficult.” (Ex. T-89).

237. Mr. Elliott provided ADK with a preliminary audit report on May 21, 2010, in which he identified seven potential claims against 4Kids valued at approximately $7.3 million. The largest preliminary audit claim was for the $4.3 million in home video royalties that Mr. Elliott had identified in his January 2010 email to Mr. Sugimoto, based on the purported retroactive applicability of the 2008 Agreement. (Ex. T-12 at 2-6).

*665 238. In his May 2010 audit report, Mr. Elliott also raised three issues regarding international withholding taxes. First, Mr. Elliott suggested that the withholding taxes should be taken equally from 4Kids’ share. 43 Second, Mr. Elliott suggested that 4Kids had not substantiated foreign withholding tax deductions with withholding tax certificates. Third, Mr. Elliott posed questions to ADK as to whether (1) anyone at ADK had ever made an inquiry with 4Kids regarding the tax credits; (2) whether ADK actually took the tax credits on its Japanese income tax returns; and (3) whether anyone at ADK ever submitted a request to 4Kids to provide evidence that the withholding taxes were actually paid. (Ex. T-12 at 9-11).

239. In or about early June 2010, Mr. Elliott learned from his review of 4Kids’ participation statements and subsequent conversations with 4Kids’ employees that 4Kids was receiving service fees from Fu-nimation in connection with Yu-Gi-Oh! home videos. (Elliott Deck ¶ 19-20).

240. Mr. Newborn of 4Kids provided copies of the Funimation Services Agreements to ADK executives at a trade show in Las Vegas on June 8, 2010. (Hosaka Deck ¶ 43). Copies were emailed to Mr. Elliott the following week. (Ex. T-17 at 3). 44

C. The Parties’ June 2010 Correspondence

1. ADK’s June 17, 2010 Letter

241. On June 17, 2010, Mr. Hosaka sent a letter to Mr. Kahn at 4Kids in which he raised two substantive audit issues. First, Mr. Hosaka stated that 4Kids had “misclassified certain income” by not paying Licensor the entire 20% home video royalty under the 2001 Agreement, and that Licensor was “entitled to 20% of the wholesale price,” premised on the retroactive application of the 2008 amendment to Paragraph l(b)(iii), which provided that the entire 15-20% home video royalty would go to ADK if 4Kids exercised the home video rights itself. Second, Mr. Ho-saka claimed that 4Kids was obligated to include the Funimation service fees in Gross Income. (Ex. T-15).

242. Mr. Hosaka attached a proposed “tolling agreement,” which he asked 4Kids to sign in order to “give Mr. Elliott time to complete his audit and allow [4Kids and ADK] time to informally discuss and explore issues raised by the audit.” (Ex. T-15; Newborn Deck ¶ 137).

243. The June 17 letter did not (1) mention tax withholding, third-party audit costs, E & O insurance allocation, or material and courier costs; (2) contain any form of the words “notice,” “breach,” “cure,” or “terminate”; (3) make a demand for the payment of a specified sum; or (4) reference the termination provision of the 2008 Agreement. (Ex. T-15).

244. The June 17 letter was sent by email and facsimile. (Ex. T-15). There is no evidence that it was sent by express mail or express airmail as provided in Paragraph 15(c) of the 2008 Agreement.

*666 2. ADK’s June 25, 2010 Letter

245. On June 25, 2010, ADK’s outside counsel sent a letter to Mr. Newborn briefly discussing Mr. Elliott’s preliminary audit Findings. The letter contained several requests or demands for payment. The letter “demand[ed]” and “insist[ed]” that 4Kids repay and reimburse Plaintiffs for underpaid royalties and other expenses. Specifically, the letter outlined ADK’s position that it was owed: (1) $2,431,788.10 in home video royalties which ADK asserted were wrongly split between the parties under the 2001 Agreement, or, alternatively, half of the gross amount of the service fees paid to 4Kids by Funimation (incorrectly estimated by Mr. Elliott to be $2,215,198.50); (2) third-party audit costs in the amount of $127,925.29; (3) $74,063.64 in improper deductions for bank charges and “miscellaneous undisclosed deductions”; and (4) $366,000.00 in previously uninvoiced material costs. In addition, the letter requested documentation to support $2,424,397.76 in international withholding taxes paid by 4Kids’ subagents and copies of 4Kids’ E & O insurance policies and certificates. (Ex. T-16). All of the numbers listed in the June 25 letter are inconsistent with the numbers later asserted in the December 20, 2010 letter sent by ADK to 4Kids. (Ex. T-16; Ex. T-18; Newborn Decl. ¶ 18).

246. The June 25 letter closed by stating, “In the interest of resolving this matter amicably, I also ask that you agree to the attached tolling agreement in order to give the parties time to discuss the issues. I look forward to your prompt response and to working with you to resolve this matter.” (Ex. T-16).

247. The June 25 letter did not (1) include any form of the words “notice,” “breach,” “cure,” or “terminate”; or (2) reference the termination provision of the 2008 Agreement. (Ex. T-16).

248. On its face, the letter purports to have been sent by facsimile, hand delivery, and email. (Ex. T-16). Licensor introduced no evidence that the letter was, in fact, hand delivered, and there is no evidence that it was sent by express mail or express airmail as provided in Paragraph 15(c) of the 2008 Agreement.

3. 4Kids’ June 29, 2010 Response

249. On June 29, 2010, Mr. Newborn sent a letter to counsel for ADK. Mr. Newborn requested a copy of Mr. Elliott’s audit report and supporting schedules in order to assist 4Kids in understanding and resolving the audit issues:

We believe that it would be more productive to review the audit report which Mr. Elliott is presumably compiling and which should have schedules attached to it supporting the various claims being asserted. As you’re probably aware, it is customary in the licensing business for a party conducting an audit to supply the audit party with the audit report. The parties can then discuss whatever issues are raised by the audit report with the details surrounding such issues available to the parties.

(Ex. T-17 at 2).

250. In his June 29 letter, Mr. Newborn also responded to the substantive points raised by ADK’s June letters, explaining 4Kids’ position that (1) the 2001 Agreement clearly states that the 20% home video royalty is to be split between the parties; (2) ADK is not entitled to any portion of the Funimation service fees, which were for “hundreds of thousands of dollars” of “services rendered” by 4Kids; (3) ADK had approved third-party audits, and was obligated to pay its share of the associated costs; and (4) ADK had been charged an appropriate amount for its share of the E & O costs. As to withholding taxes, Mr. Newborn suggested that *667 Mr. Elliott conduct “audit tests” in order to “verify the withholding tax information on [4Kids’] participation statements.” In addition, Mr. Newborn asked for additional information regarding the material costs. Finally, Mr. Newborn informed ADK that the proposed tolling agreement was being reviewed by 4Kids’ outside counsel. (Ex. T-17).

251. The parties ultimately signed the tolling agreement on June 30, 2010. (Newborn Decl. ¶ 139). The agreement was effective as of June 1, 2010. 45

252. Following the parties’ June 2010 correspondence, Mr. Elliott’s audit continued for several months, culminating in the issuance of his November 17, 2010 report to ADK. (Elliott Decl. ¶¶ 14-15). During this time, there is no record evidence of any written correspondence between the parties concerning the substance of the audit.

D. The Parties’ December 2010 Correspondence

1. ADK’s December 20, 2010 Letters

253. On December 20, 2010, Mr. Shino-da sent a letter to 4Kids containing a brief description of Mr. Elliott’s nine audit Findings. At the conclusion of each Finding, Mr. Shinoda variously wrote that ADK “expect[ed],” was “entitled to,” or was “owed,” or that 4Kids “should pay” certain amounts. (Ex. T-18).

254. The December 20 letter did not provide 4Kids with enough information to fully evaluate Licensor’s audit claims. For example, the letter provided no information regarding which withholding tax deductions were considered “substantiated” and which were not. Mr. Foster testified that he could not determine, from looking at Mr. Shinoda’s December 20 letter, which tax withholding deductions Licensor counted as “unsubstantiated.” (9/21/2011 Tr. 83:18-21, 87:1-4 (Foster)).

255. Nor could 4Kids determine from Mr. Shinoda’s letter what amounts claimed were beyond the statute of limitations period. Similarly, Mr. Shinoda’s letter provided no information regarding the basis for Licensor’s calculation of the material and courier costs. (Ex. T-18).

256. Mr. Shinoda’s letter also claimed that ADK had not received a scheduled payment for 4Kids’ purchase of the Yu-Gi-Oh! 5D series, which had been due November 30, 2010. (Ex. T-18). In fact, 4Kids had made such a payment. (Newborn Decl. ¶ 141; 8/31/2011 Tr. 72:15-21 (Shinoda)). Regarding the allegedly delinquent payment, Mr. Shinoda wrote that 4Kids “must now [make the payment] or be in breach of the parties’ agreements.” (Ex. T-18 at 1) (emphasis added).

257. Regarding the audit claims, Mr. Shinoda wrote that he was writing to “request payment for the underpayment Mr. Elliott found” and that he “insisted] that within 10 business days 4Kids pay ADK $4,819.354.63 to cover the full underpayment.” Although the letter was dated December 20, 2010, the letter called for payment of these amounts allegedly due by December 14, 2010 46 — six days before the date of the letter. (Ex. T-18 at 5).

258. Mr. Shinoda did not use the words “notice,” “cure” or “terminate” in his letter, nor did he reference the termination *668 provision of the 2008 Agreement. The only occurrence of the word “breach” was with respect to the allegedly delinquent November 30 payment, which had been paid on November 30, 2010, as required. (Ex. T-18).

259. Referring to the December 20 letters, Mr. Shinoda testified that “[i]t was [his] intent by including this ten business day cure period to alert 4Kids to the urgency of their need to respond to [ADK’s] demand for payment.” He also testified that he gave 4Kids ten business days to cure “because [he] was required to do so under the 2008 Agreement,” and that he “included a reference to paragraph 4(f) because that paragraph states that ‘[a]ny underpayment reflected in the audit shall be paid to [the YGO Consortium] promptly.’ ” (Shinoda Decl. ¶¶ 58-59).

260. But on cross-examination, Mr. Shinoda admitted that he did not write the December 20 letters and, in fact, does not know who wrote those letters. (8/31/2011 Tr. 78:20-79:5 (Shinoda)). When asked at his deposition why he included a ten-day period in the December 20 letter, Mr. Shi-noda testified that he believed ten days was an “appropriate” duration, but did not make any reference to any requirements of the 2008 Agreement. (8/31/2011 Tr. 79:11-83:9 (Shinoda)).

261. Mr. Shinoda claims to have sent a second version of his letter later on the same day, December 20, 2010, correcting the mistake regarding the November 30 payment. (Shinoda Decl. ¶ 57). The second version of the letter does not explain that it replaces the first, and it omits references to the November 30 payment (and all references to a “breach” of the 2008 Agreement). (Ex. T-19). 4Kids first learned of this version of the letter during the pre-trial discovery phase of this proceeding in May 2011, and it has not been able to find this second version in its records. (Newborn Decl. ¶ 141 & n.51). Mr. Kahn testified that it is possible that it was received by 4Kids but inadvertently discarded as a duplicate. (8/8/11 Dep. Tr. 240:22-241:14 (Kahn)).

262. The second version of Mr. Shino-da’s December 20 letter contains fax lines in English at the bottom, suggesting that it was “received” by a fax machine on December 20, 2010. (Ex. T-19). However, the fax confirmation line does not indicate that the letter was sent to, or received by, 4Kids. Moreover, the letter has a document control number in the lower left that appears similar to the document control numbers on other letters sent by ADK’s outside counsel (see, e.g., Ex. T-16; Ex. T-25), suggesting that the letter was prepared by the Olshan firm. Mr. Hosaka also testified that the Olshan firm may have drafted the December 20 letters. (9/6/2011 Tr. 74:20-75:17 (Hosaka)).

263. Both December 20 letters on their face state only that they were sent by facsimile. (Ex. T-18; Ex. T-19). Mr. Shi-noda testified that he did not know w

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