With Tolkien settlement, Warners moves beyond New Line's old tricks

By Matthew Belloni

The heirs of J.R.R. Tolkien aren’t the only ones raising their goblets to celebrate Tuesday’s settlement of the “Lord of the Rings” litigation.

Fans of Tolkien’s “The Hobbit” can toast to the news that Peter Jackson and Guillermo del Toro can move forward on two planned movies for Warner Bros. and MGM, and charities as diverse as the Save the Children Fund and the World Cancer Research Foundation — both beneficiaries of the Tolkien Trust, which will receive a huge chunk of the settlement — can expect a windfall soon.

But there likely were a few joyful cheers Tuesday coming from an unlikely place: Warner Bros. Despite forking over a massive sum — sources peg the value of the settlement at more than $100 million — the studio’s legal department has rid itself of a mess it didn’t make and a case it shouldn’t have had to defend in the first place.

When all is said and done, “Rings” will go down as one the of the most-litigated franchises in movie history, and it’s not surprising why. Sure, anyone involved with films that have grossed $3 billion in theaters and about as much in DVD, licensing and merchandising revenue is going to want a piece. And the “Rings” chain of title stretches from here to Mordor, with rights passing in complicated deals from the Tolkiens to United Artists to producer Saul Zaentz to Miramax to New Line.

But there’s another factor at play here: To say that Bob Shaye and Michael Lynne’s New Line had an aggressive reputation in legal circles would be akin to suggesting Frodo Baggins’ feet are a bit odd-looking. All studios routinely are accused of underpaying profit participants, but while most at least make noises about wanting to settle with a handshake, New Line just gave you the finger.

That strategy led to an almost comical parade of lawsuits and many eventual payouts. Jackson’s Wingnut Films sued in 2005 claiming New Line wouldn’t even let him audit, and the case eventually settled. Zaentz actually sued New Line twice — once to recover unpaid profits and again when New Line allegedly refused to make records available to Zaentz’s accountants to verify participation statements. Even some New Zealand actors that appeared as extras in the films sued to recover their share of merchandising.

When the Tolkiens began complaining about not being paid a penny of a 7.5% gross participation they negotiated into a 1969 deal with UA, it shouldn’t have been a shock that the cries fell on deaf ears.
“The trustees had done everything possible to resolve the dispute with New Line prior to taking action,” lead lawyer Bonnie Eskenazi says.

That, most Hollywood litigators would tell you, was simply the New Line way. Shaye, a former attorney, often was the target of criticism. But in an interview last summer, he painted a more nuanced picture.

“All I can say is that the business-affairs department has its own way of dealing with things,” he told the Los Angeles Times. “There’s been a sense of hubris and an exerting of power on their part, as well as an overweening loyalty to the company, that has played into this. Let’s just say it’s been really irritating.”

Warners would agree. The studio inherited the Tolkien case, which was filed just a month before New Line was absorbed in March 2008. The difference in litigation style was immediate: Gone were New Line’s attorneys in the Jackson case, the ones who the court sanctioned $125,000 for playing fast and loose with internal documents. More significantly, Warners allowed more access to documents and even began talking settlement.

The studio isn’t a charity, of course. It’s had its own issues with participants. In 2007, a jury found it had underpaid producer Alan Ladd Jr. by, among other things, misallocating blanket license fees to undervalue films he produced. But its reputation among studios is for being far more reasonable with participants than New Line was. When “Harry Potter” author J.K. Rowling grumbled about her share of profits from the billion-dollar Warners film franchise, her concerns were addressed quietly, without litigation.

All of which made the prospect of an October trial against the estate of a beloved author whose books turned into a $6 billion franchise all the more unpalatable. Plus, the Tolkiens were asking the court to void New Line’s right to make “The Hobbit,” which would have been a disaster for new Warners general counsel John Rogovin far worse than a judge ruling this winter that Fox had a distribution right in “Watchmen” mere weeks before its planned release.

Warners had a chance to end New Line’s most high-profile lawsuit and start fresh, so they settled. And, at least for now, all is right in Middle Earth.