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Making Sense of the latest Tolkien Lawsuit

News from Bree

Jul 16 2013, 9:54pm

Views: 531
Making Sense of the latest Tolkien Lawsuit Can't Post

Further to our earlier report this week, attorney and Message Board member Douglas C. Kane aka Voronwe the Faithful has once again sent us a breakdown on 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 Claims

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") 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.

The Counter-Claims

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."

The Unsuccessful Motion to Dismiss/Strike the Counterclaims

On March 28, 2013, plaintiffs brought motion to dismiss or to strike the counterclaims, asserting that these claims were a "patently absurd" attempt to bring a premature claim for malicious prosecution. They asserted that the counterclaims were SLAPPS, or Strategic Lawsuits Against Public Participation, brought only to try to bully them into dropping the original lawsuit. They made an additional claim that the actions defendants complain about are protected under California law by an absolute privilege for any communications made in, or in connection with, judicial proceedings, and thus cannot be the subject of a cause of action. (As an aside, a number of documents were filed under seal to protect their confidentiality, including most interestingly the September 2009 settlement agreement that resolved the previous Tolkien v. New Line lawsuit. A look at that document would have revealed the total settlement amount, a question about which much speculation has been engaged. Also included in the documents filed under seal, unfortunately, was the September 2010 regrant agreement itself.

This past Thursday, July 11, 2013, U.S. District Judge Audrey Collins denied a motion to dismiss, saying what Warner Bros. and Zaentz were doing wasn't "disguised claims for malicious prosecution."
"Simply stated," the judge writes, "these claims arise out of the parties' divergent understanding of the Warner Parties' and Zaentz's rights to The Lord of the Rings and The Hobbit. They are routine contract-based claims and counterclaims." The judge also says that although the other side might argue that Warners has dressed up a challenge to exploitation into "repudiation," that term appropriately characterizes the claim that the Tolkien estate has "revoked rights it already granted." The judge also rejected plaintiffs' claim that the claims stemmed from "protected" speech.

What Happens Next?

Unless the Estate tries to appeal this latest ruling (a move that would have a very small chance of success, in my opinion), the parties will now move on to actually litigating their respective claims against each other. This will involve taking depositions and requesting documents and other "discovery". If the previous lawsuit is any guide, the two sides will have numerous disputes and arguments about what information should or should not be required to be turned over. Eventually, however, both sides are likely to file motions for what is called "summary judgment" in which they asked the judge to declare that as a matter of law, the evidence available is not sufficient to support the other side's claims.

Unfortunately, however, unlike with the previous lawsuit in which I was able to obtain copies of a wealth of material related to the series of agreements in which the film rights were passed from Tolkien to United Artists, then Zaentz, then licensed by Zaentz to Miramax, and finally passed on to New Line, all of which had been attached to New Line's motion for summary judgment, this time it is unlikely that I will get a chance to see a copy of the 2010 regrant agreement (or, probably, most of the other documentation that Zaentz and Warners say they have) over the course of the lawsuit, since even if it reaches the point where motions for summary judgment are filed, they will likely again be filed under seal. Therefore it will be difficult for me to judge the accuracy of the claims. With the material that I have been able to review, at this stage it appears to me that Zaentz and WB have a pretty compelling case as the issue of online games. It is, of course, possibly that Zaentz and WB are misrepresenting the history and that the true facts will support the position of the Estate and Harper Collins, but right now it looks to me like they are on pretty shaky legal grounds.

I think that the Estate may have a stronger position with regard to the slot machines. While Zaentz's and WB's argue that the Estate and WB has long conceded that that online gaming is part of rights sold, I have not seen any similar material regarding slot machines or other gambling. If the Estate had just gone after that, they might be in a stronger position. This suggests to me that the case is really more about the online games, even though they made a bigger deal about the slot machines, which sounds more offensive to most people.
My sympathies are mostly with the plaintiffs in this case, although I'm not sure how strong their claims will turn out to be legally. As I mentioned above, the case doesn't have any direct effect on the films, except for the potential negative publicity (and perhaps lost profits for WB and Zaentz). However, the case potentially has profound ramifications for the future of Tolkien fandom. I do think that Zaentz in particular is angling to get a final determination that he can do some of the things that he has long wanted to do, like a Middle-earth theme park, which I am sure that the Estate would object to if they can, regardless of the rumors to the contrary. If he and WB prevail, it could mean a much greater commercialization of the Tolkien universe than we have seen thus far. On the other hand, if the Estate prevails, it could lead to the end of such popular activities as the MMORPG (massively multiplayer online role-playing game) The Lord of the Rings Online, which certainly would be a disappointment to many fans. In essence, the resolution of the case will go a long way towards determining who has the final say in how Tolkien's most popular and enduring works are exploited and expanded upon.

Douglas C. Kane is a civil rights attorney and Tolkien scholar living in California. His first book, Arda Reconstructed: The Creation of the Published Silmarillion was published by the Lehigh University Press in 2009, and reissued in paperback in 2011. His article about the previous Tolkien v. New Line lawsuit was Clearing up Misconceptions Regarding the Tolkien vs. New Line Lawsuit. He posts here at TORN as Voronwe_the_Faithful.

(This post was edited by Silverlode on Jul 17 2013, 4:08am)

Subject User Time
Making Sense of the latest Tolkien Lawsuit News from Bree Send a private message to News from Bree Jul 16 2013, 9:54pm
    An addendum Voronwë_the_Faithful Send a private message to Voronwë_the_Faithful Jul 17 2013, 2:01pm
        I actually understood about 90% of what you've written! grammaboodawg Send a private message to grammaboodawg Jul 18 2013, 11:15am
            Glad you found it helpful! // Voronwë_the_Faithful Send a private message to Voronwë_the_Faithful Jul 18 2013, 1:01pm
        Thank you Loresilme Send a private message to Loresilme Jul 18 2013, 2:00pm
    Out of curiosity... RosieLass Send a private message to RosieLass Jul 17 2013, 10:47pm
        Some answers Voronwë_the_Faithful Send a private message to Voronwë_the_Faithful Jul 17 2013, 11:16pm
            Enterprises, Estate, tomato, tomahto. RosieLass Send a private message to RosieLass Jul 18 2013, 4:32am
    the Tolkien estate Eriol Gurner Send a private message to Eriol Gurner Aug 13 2013, 2:56pm


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