{"url_path":"/sec/aent/10-q/2026/item-1","section_key":"item-1","section_title":"Item 1 Legal Proceedings**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-14","source_url":"https://www.sec.gov/Archives/edgar/data/1823584/0001493152-26-023051-index.html","accession_number":"0001493152-26-023051","cik":"0001823584","ticker":"AENT","issuer_name":"ALLIANCE ENTERTAINMENT HOLDING CORP","edgar_url":"https://www.sec.gov/Archives/edgar/data/1823584/0001493152-26-023051-index.html","primary_entity_key":"0001823584","primary_entity_name":"ALLIANCE ENTERTAINMENT HOLDING CORP"},"word_count":793,"has_tables":true,"body_markdown":"**Item\n1. Legal Proceedings**\n\n \n\nAlliance\nis currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary\ncourse of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial\nmatters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property\nrights.\n\n \n\nDepending\non the nature of the proceeding, claim, or investigation, the Company may be subject to monetary damage awards, fines, penalties, or\ninjunctive orders. Furthermore, the outcome of these matters could materially adversely affect Alliance’s business, results of\noperations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable\nand subject to significant judgment to determine the likelihood and amount of loss related to such matters.\n\n \n\n**Video\nPrivacy Protection Act Matters.**Beginning in August 2024, several putative class actions and related proceedings were filed against\nthe Company and its subsidiary, DirectToU, LLC (“DirectToU”), in federal courts and arbitration alleging violations of the\nVideo Privacy Protection Act (“VPPA”) and similar state laws. The complaints generally allege that the Company disclosed\ncertain customer information and video viewing or purchasing data to third parties through the use of website tracking technologies.\n\n \n\nIn\nJune 2025, the parties reached a settlement resolving the VPPA-related claims, subject to court approval. The settlement provides for\na cash payment of $1.577 million to the class. The Company expects a portion of the settlement payment to be covered by insurance and,\naccordingly, recorded an insurance receivable of $1.377 million. The Company recorded a settlement liability of $1.577 million and the\nrelated insurance receivable during the three months ended September 30, 2025, and such amounts remained recorded in the Company’s\ncondensed consolidated financial statements as of March 31, 2026.\n\n \n\nThe\ncourt granted preliminary approval of the settlement in October 2025. Final approval of the settlement remains pending. The Company believes\nthe recorded accrual is adequate based on currently available information.\n\n \n\n**Office\nCreate Litigation.**On June 6, 2024, Office Create Corporation filed a civil action against\nCOKeM International Ltd. (“COKeM”) in the United States District Court for the District of Minnesota, alleging contributory\ntrademark infringement, false designation of origin, unfair competition, unjust enrichment, and civil conspiracy arising from the alleged\ndistribution of Cooking Mama: Cookstar. Office Create seeks monetary damages in excess of $40 million. No damages have been awarded.\n\n \n\nCOKeM has denied the allegations and filed a third-party complaint against\nPlanet Entertainment LLC and its principal seeking indemnification and contribution. Default has been entered against those third-party\ndefendants. In January 2026, Office Create dismissed its claims against Plaion, Inc. and Plaion GmbH pursuant to a confidential settlement\nagreement, which is reflected in Office Create’s expert damages analysis.\n\n \n\nDiscovery is ongoing. On March 9, 2026, Office Create served an expert report\nopining that total damages are approximately $37.9 million. Trial readiness is scheduled for October 2026. The Company maintains insurance\ncoverage that may apply, subject to policy limits. The Company cannot reasonably estimate a possible loss, and no accrual has been recorded.\n\n \n\n**Sparkle\nPop Matter.**On June 9, 2025, Sparkle Pop, LLC filed an adversary proceeding against the Company in the United States Bankruptcy Court\nfor the District of Maryland in the matter *In re Diamond Comic Distributors*, alleging theft of trade secrets and tortious interference\nwith contractual relations. The Company has moved to dismiss the amended complaint, and that motion remains pending. The Company denies\nthe allegations. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this\nmatter, and no accrual has been recorded.\n\n \n\n**TCPA\nDemand.**In November 2025, the Company received a demand letter asserting potential claims under the federal Telephone Consumer Protection\nAct against its subsidiary, DirectToU, LLC, relating to alleged marketing text messages. No complaint has been filed, and discussions\nbetween the parties are ongoing. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated\nwith this matter, and no accrual has been recorded.\n\n \n\n37\n\n[Table of Contents](#toc_001)\n\n \n\n**Other\nMatters**\n\n \n\nFrom\ntime to time, the Company is involved in other legal and regulatory matters arising in the ordinary course of business.\n\n \n\nIn\nDecember 2024, DirectToU, LLC received a third-party tender of defense regarding a notice of alleged noncompliance with California Proposition\n65 concerning a product supplied by a vendor and sold by the Company. The Company discontinued the product and tendered defense to the\nsupplier, which has assumed responsibility for responding to the notice. The Company does not believe this matter is material.\n\n \n\nIn\nJuly 2025, the Company received a cease-and-desist letter alleging a breach of a contractual non-solicitation provision. The Company\ndisputes the allegations, has responded to the correspondence, and has not filed any litigation. The Company does not believe this matter\nis material."}