MAKING SENSE OF THE LATEST TOLKIEN LAWSUIT
By Douglas C. Kane
As most here probably know, there is yet another litigation winding its way through the U.S. federal court system related to Tolkien’s Middle-earth subcreation. This follows numerous past law suits and legal scuffles, including efforts by both the Tolkien Estate (the entity charged with protecting Tolkien’s literary legacy) and Middle-earth Enterprises (a division of the Saul Zaenz Company, which owns the film rights to The Lord of the Rings and The Hobbit and related rights, the exact scope of which is at the heart of this current litigation) to prevent third parties from making unauthorized use of the names, characters, places, and other material that they each respectively (and sometimes competingly) claim legal control over. It also includes several past lawsuits against New Line, one by Peter Jackson himself, and others by actors and other individuals involved with the Lord of the Rings films who claimed that they were not paid the compensation that they were contractually due for their efforts on those films. And, of course, it included the big one, the lawsuit by various individuals and entities related to the Tolkien Estate and Tolkien’s publisher against New Line alleging that the film company had failed to pay the royalties that it was due from the wildly successful films pursuant to the original agreement by which Tolkien had first sold the film rights, which was finally settled for an undisclosed (but clearly large) sum in September 2009. That litigation was particularly of interest to fans of Tolkien and of Jackson’s Middle-earth films because, in addition to being about large sums of money, it also included a threat by the plaintiffs to stop further production on the films based on The Hobbit. The settlement of that case removed that threat, and the current litigation does not threaten the productions in any direct way. But it does have potentially dramatic long term ramifications regarding the future of the Tolkien-related universe. The other big difference between this litigation and the previous Tolkien versus New Line case is that, unlike in that case in which it was all about whether New Line had failed to meet its legal obligations, in this case the two sides have competing claims against each other, each claiming that the other has acted in bad faith and infringed upon their rights. The determination of who is right will go along ways towards defining what that future will be like.
The lawsuit was initially filed on November 19, 2012 by the Tolkien Estate and related entities, as well as the publisher, Harper Collins and related entities (together referred to as “plaintiffs”, against Warner Brothers, New Line, and related entities (together referred to as “WB”) and most particularly Saul Zaentz and his Middle-earth Enterprises (usually referred to as “Zaentz” and together with WB referred to as “defendants”). Interestingly, Christopher Tolkien is not a named plaintiff this time, but his sister Priscilla is, as a trustee of the Tolkien Trust. There is also entity entitled Fourth Age, Ltd., which was not a party to the last suit (it was actually formed in November 2011, well after that suit was settled). Although court records related to the lawsuit do not reflect this, according to U.K corporate records this entity actually changed its name on February 21, 2013, to Tolkien Estate, Ltd. Its directors include Tolkien family members Baillie Tolkien, Christopher Tolkien, Priscilla Tolkien, Simon Tolkien and Michael George Tolkien, as well as the Tolkien Estate attorney, Steven Andrew Maier.
Unlike the previous lawsuit, which alleged that New Line breached the original agreements selling the film rights by failing to make the royalty payments that those agreements require, the main complaint this time is copyright infringement. There are two main activities that plaintiffs claim defendants infringe upon rights that plaintiff assert they still hold: (1) Lord of the Rings themed slot machines; and (2) online and downloadable video games. The basis of the claims is that the original agreement in which the film rights were sold only granted limited merchandising rights that cover “personal property that can physically be purchased,” and that these activities exceed the scope of those limited merchandising rights. The plaintiffs also claim that Zaentz has been infringing trademark rights. These disputes have been brewing for a long time, but apparently were brought to a head when one of the Estate’s attorneys received a “spam” email advertising the Lord of the Rings slot machines. Plaintiffs claim they have engaged in settlement discussions since 2010, to no avail, and that Zaentz has instead indicated that he intends to expand the merchandising.
On January 18, 2013, Zaentz and WB each responded to the lawsuit by, in addition to denying the allegations, filing counterclaims for declaratory relief and for damages for breach of the implied covenant of good faith and fair dealing inherent in all contracts under U.S. law. They each subsequently filed amended counter-claims on March 11, 2013. These claims are essentially based on the argument that by filing their lawsuit, plaintiffs breached the implied covenant by repudiating the agreement granting the rights to defendants. Defendants cite correspondence going back to 1996 in which Harper Collins and the Estate’s attorney concede that Zaentz has the right to online video games based on The Hobbit and The Lord of the Rings. Perhaps most interesting, they cite a September 2010 “regrant” agreement in which the Estate confirms the rights held by Zaentz, and licenced to Warners/New Line. That must be the agreement that was referred to in Entertainment Weekly back in October 2010, in which Jackson was quoted as saying that one of the issues causing the delay in beginning production on the Hobbit films was negotiations with the Estate over rights issues. The interpretation of what that agreement actually says and means is clearly at the heart of this dispute.
The damages claim is based on the allegation that they entered into the “regrant” agreement in September 2010, and then the Estate immediately started complaining about actions that (at least in Zaentz and WB’s opinion), they had just agreed Zaentz and WB could do. They assert that this “repudiation” of the agreement has prevented them from entering into “license agreements for online games and casino slot machines in connection with The Hobbit — a form of customary exploitation it previously had utilized in connection with the Lord of the Rings trilogy — which has harmed Warner both in the form of lost license revenue and also in decreased exposure for the Hobbit films.”