July 11, 2013 1:06pm PT by Eriq Gardner
Warner Bros. Allowed to Pursue Tolkien Estate For Allegedly Breaching 'Hobbit' Contract
A California federal judge has given Warner Bros. the go-ahead to pursue allegations that the J.R.R. Tolkien estate's "repudiation" of contractual rights has cost the studio to miss out on millions of dollars of licensing opportunities and decreased exposure for the Hobbit films.
Warners made its counterclaim in the midst of an $80 million lawsuit first brought in November by the Tolkien family and HarperCollins over the scope of its contract over Hobbit and Lord of the Rings. It's the estate's position that its contract with rights holder The Saul Zaentz Co. doesn't cover online slot machines and games.
In reaction to this, the defendants went on the counter-offensive by saying the repudiation amounted to a breach of contract. It wasn't immediately clear whether the argument would fly because Tolkien's attorneys told the judge, "You can't be sued for suing."
But on Thursday, U.S. District Judge Audrey Collins denied a motion to dismiss, saying what Warner Bros. was 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 ruling ensures that if the Tolkien estate, represented by attorney Bonnie Eskenazi, wishes to pursue allegations that Warner Bros. and its partners have infringed the copyright in the famous books and breached a contract by going beyond only "tangible" merchandise, the defendants have their own potential ammunition in the fight.
According to the counterclaim made by Warners, represented by Daniel Petrocelli, "Because of the repudiation, Warners has not entered 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 Warners both in the form of lost license revenue and also in decreased exposure for the Hobbit films."
The filing also states that it had plans for a Hobbit-themed casino slot machine with a company called WMS Gaming but "was unable to proceed" and that "this alone cost Warners millions of dollars in license fees."