[added April 21: For an update on this story, see this new entry.]

The news that the Tolkien Trust has filed a lawsuit against New Line Cinema on February 11 has triggered confusion and consternation. Fans had just been rejoicing that the problems holding up the initiation of the Hobbit film project were solved. The Peter Jackson lawsuit was settled, the Writers Guild of America strike was over, and apparently a director had been found in Guillermo Del Toro. Now fans wonder what will happen to that project, and speculation is rampant on the internet.

A lot of that speculation rests on very little information. The initial journalistic reports of the suit on the whole did a pretty good job of presenting the bare bones of the plaintiffs’ allegation. I cited some of those reports in my previous entry on the subject. Still, they were all based on some limited information given to the news media by the Trust’s lawyers.

The most reliable source of information about the lawsuit is probably the documents filed with the court. The suit begins with the filing of a document called a “complaint,” and as soon as it is filed, the complaint becomes a public document, and anyone is entitled to read it. I obtained a copy the next morning, February 12. I’m sure reporters are even now scrutinizing it for more in-depth articles.

New Line, as the defendant, will have to file a response to the complaint, and the response fill typically be either an “answer” in which New Line will admit or deny each of the allegations, or a motion to dismiss the case, in which New Line will attempt to get the case thrown out of court. There is usually a deadline for filing such a response. The period allowed varies from state to state, but it typically is in the 20 to 40 day range. Either party may request an extension of the deadline, often for a period of a month or so.

(I’m sure others have obtained the lawsuit as well and are posting after having read it. William Cloud Hicklin, participating on a forum on The Barrow-downs site, is one such.)

I am not going to post the suit or quote great swathes of it here. That, I think, would just fan the flames of speculation. There are many legal terms and phrases in the suit that could easily be debated endlessly by people who don’t know what they mean. The first time I read the document, I jumped to a few conclusions that I later found out were wrong.

I’ve waited to post on the subject because I’m no lawyer, but I wanted to understand the case before writing about it. So I sat down with someone who is a lawyer: James D. Peterson, of Godfrey & Kahn, S.C., who practices intellectual property rights law. He was the one who vetted my book, The Frodo Franchise, to make sure I had not inadvertently violated any copyrights and trademarks. (I’m happy to say I had been cautious enough that neither he nor the University of California Press’s lawyer found anything that needed changing.) Jim walked me through the Tolkien document, and I understand it considerably better now. He also went over the penultimate draft of this entry and made numerous helpful suggestions.

I’m going to present a few simple facts from the lawsuit that address concerns that I’ve seen fans raise in forums and other groups. I hope such information will help to dispel some of the distortions and errors that have appeared. Most of all, fans who have assumed that the Hobbit project is now doomed will learn that that isn’t necessarily so.

I have had no access whatsoever to information concerning this lawsuit from the Tolkien Trust or New Line. What follows is based purely on the suit’s text and my own knowledge of the situation from having followed the development of the franchise.

I will not express any opinion on the merits of the case. We have yet to hear any response from New Line, and it has not yet filed its answer to the complaint, so we have no idea what defense it will mount. A full understanding of the Tolkien Trust’s case would require knowledge of the terms of the original 1969 contracts that J. R. R. Tolkien and his publisher made with United Artists in licensing the adaptation rights to The Hobbit and The Lord of the Rings. I haven’t seen those contracts, which have never been made public. Much of the activity in this case will take place between the parties and out of public view, but it is possible that the Tolkien Trust and New Line will file additional documents with the court that will provide us with more detail about the case. It’s early days yet.

The Plaintiffs and Defendants

One sort of speculation I’ve seen involves the identity of the plaintiffs. For the sake of simplicity, the group filing the suit is referred to in the news as the Tolkien Trust, which is a charity set up on April 1, 1977. It contributes to such causes as The Darfur Appeal, Alzheimer’s Society, World Cancer Research Foundation, and World Wildlife Foundation (p. 3, paragraph 9). Several of the plaintiffs are trustees of this organization.

There are several other plaintiffs, including publishers, trusts, and individuals.

A second trust is involved: “The J. R. R. Tolkien 1967 Discretionary Settlement.” As described in the introductory section of the suit, this “is a private discretionary trust, established by a deed of settlement dated September 1, 1967, whose beneficiaries are descendants of J. R. R. Tolkien” (p. 4, paragraph 11). Again, trustees of this organization number among the plaintiffs.

Three affiliated publishing companies are among the plaintiffs. Tolkien’s novels were published by a company that evolved and grew over time, with attendant name changes. In 1969, when the film rights were licensed to United Artists, it was George Allen & Unwin Ltd. Eventually that firm was absorbed into the current publishing giant, HarperCollins Publishers Ltd., which holds the worldwide licenses to publish Tolkien’s works. With a slight name expansion to George Allen & Unwin (Publishers) Ltd., the original company is currently a subsidiary of HarperCollins. A subsidiary of George Allen & Unwin (Publishers) Ltd is Unwin Hyman Ltd. Both HarperCollins and Unwin Hyman Ltd. have been assigned “certain rights to proceeds from the July 8, 1969 contract between George Allen & Unwin (Publishers) Ltd. and United Artists” (pp. 4-5, paragraph 14).

Finally, there are the individuals:

Christopher Reuel Tolkien, the son of JRRT and a trustee of both trusts.

Priscilla Mary Ann Reuel Tolkien, the daughter of JRRT and a trustee of both trusts.

Joan Anne Reuel Tolkien, granddaughter of JRRT and a trustee of the Tolkien Trust.

Baillie Jean Tolkien, wife of Christopher Tolkien and a trustee of both trusts.

Simon Mario Reuel Tolkien, grandson of JRRT and a trustee of the Tolkien Discretionary Settlement.

Michael George Reuel Tolkien, grandson of JRRT and a trustee of the Tolkien Discretionary Settlement.

Alan Graham Poulter, a legal consultant, currently with Henmans in Oxford; formerly (1997-2006) with Manches, the legal firm representing the Tolkien Estate; also a trustee of the Tolkien Discretionary Settlement.

The defendants are only two in number: New Line Cinema Corp. and Katja Motion Picture Corp. I can’t find much information on the latter, but according to the lawsuit, it was the subsidiary company founded by New Line for the specific purpose of overseeing the physical production of the trilogy. Such short-lived companies are typically set up for the production of a film. Katja is involved in this case because it apparently would have been responsible for keeping accounts of the film’s costs.

The Lawsuit

I think a lot of fans are convinced that the main purpose of this lawsuit is for the Tolkien family to regain the adaptation rights to The Hobbit. The text of the suit itself makes it clear that that’s not necessarily the case.

Many fans are also under the impression that Tolkien simply sold the rights to the two novels for a large flat sum in 1969 and that he was not entitled to any percentage of any future films’ income. As reports of the lawsuit have made clear, however, the 1969 contracts provided that if such films were made, Tolkien or his heirs would receive 7.5% of the gross receipts taken in by the producer. (Apparently this percentage applies to the films’ ancillaries, such as DVDs and licensed products, as well, since these are mentioned in the text. Even in 1969, a contract of this sort would be likely to include clauses pertaining to ancillaries.)

That provision is at the heart of the current lawsuit. The plaintiffs state that they have received no payments at all from New Line, despite the obvious success that the films have had. They accuse the studio of falsifying records and “substantially overstating costs and expenses” in order to claim that there is so far nothing to pay to the heirs (p. 9, paragraph 34b). The plaintiffs ask for compensation $150,000,000, but they reserve the right to raise the figure once they are able to ascertain the actual amount they are owed.

There is a smaller disagreement between New Line and the plaintiffs over the actual percentage which the original contracts stated could be applied to The Two Towers specifically. The implication is that some sort of flaw in the wording of the original caused this disparity, and the Trust asks the court to rule which party is correct. There’s probably a substantial amount of money involved, but it’s a side issue as far as fans are concerned.

Finally, the lawsuit does not ask the court simply to take the adaptation rights for The Hobbit away from New Line and turn them over to the Tolkien Trust. Here’s the exact wording of what they request from the court:

For a declaration that plaintiffs are entitled to cancel and terminate all future rights of New Line under the 1969 Agreements, including without limitation New Line’s right to produce, distribute, and/or exploit future films based upon the Trilogy and/or the Films, as well as all rights to produce, distribute and/or exploit films based on The Hobbit, and without prejudice to plaintiffs’ right to recover damages or to any other right or remedy of plaintiffs.

According to the lawsuit’s text, the plaintiffs assert that New Line’s failure to pay them the 7.5% owed means that they have violated the 1969 agreements, and the plaintiffs are therefore entitled to cancel the adaptation license. New Line would be likely to deny this, of course. The plaintiffs therefore want the judge to decide the matter by declaring that their position is correct. If the plaintiffs win on this point, it is not certain that they would attempt to stop production immediately; perhaps they would negotiate a new agreement with New Line regarding The Hobbit.

So, although there are many details and nuances, it boils down to the Tolkien group wanting to be paid the 7.5% of gross receipts owed them; they want that same percentage to be applied to The Two Towers; and they want the court to clarify that they have the right to terminate New Line’s rights to make and distribute any future films based on Tolkien’s works.

A little clarification

The payment situation might seem on the face of it clear. New Line obviously earned gross revenues from the trilogy. That’s not gross box-office income as reported on sites like Box Office Mojo, since theaters keep part of that, and foreign distributors bought the rights to distribute the trilogy in their respective countries and would keep all or most of the rentals paid by theaters. Still, New Line clearly took in a lot of money. It paid Saul Zaentz, Miramax, and Peter Jackson large sums based on gross revenues. What gives?

There’s one provision that affects this issue. The 1969 agreements specified that the 7.5% was to be paid “after a contractually-defined ‘Artificial Payment Level’ is reached.” According to the lawsuit,

The 1969 agreements expressly define “Gross Receipts” to include “all moneys derived by the distributor of the photoplay” less certain defined “off-the-top” expenses. The 1969 Agreements define the “Artificial Payment Level” as that point at which the “Gross Receipts” exceed 2.6 times the defined “final cost of production of the photoplay,” plus certain other defined costs. (p. 67, paragraph 22)

New Line apparently contends that that artificial payment level has never been reached. The lawsuit accuses it of fraudulent accounting. Here’s a instance where we have no way of knowing what the 1969 agreements said about “other defined costs.” We’ll have to wait and see.

The Hobbit project

I can see a few possibilities as to what will happen to this project.

If the case ever goes to trial—and such cases take on average about 2 ½ years to do so—the Tolkien Trust might win (perhaps after subsequent appeals). They would be awarded the $150 million or more, plus have the option of taking the Hobbit rights back. (MGM, not being a party to any lawsuit with the Trust, would presumably retain the distribution rights.) They could then strike a production deal with another studio, or they could decide not to let it be made into a film at all.

If New Line wins the court decision (and any subsequent appeals), presumably it would finally put the film into production. (Possibly New Line would decide to press on with the film as intended and take its chances with the lawsuit.)

If New Line settles this lawsuit out of court and pays the Trust whatever the two sides agree upon, the Trust might well agree that New Line could keep the rights for The Hobbit. So far, the studio has never let a lawsuit go to trial but has settled out of court. That’s what happened with Peter Jackson and in the first Saul Zaentz lawsuit.

As I said, it’s early days. If any more filings in the case are made, I’ll try to report them. Stay tuned.

Note: On February 16 the New York Times published an article summarizing some of the historical background for the case.

[Added March 13: A scanned version of the entire lawsuit is available here.]