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DEC
24
8 MOS

Weinsteins Want Dispute Over 'Hobbit' Profits in Public Court

The brothers file a motion to suspend an arbitration initiated by Warner Bros.

The Hobbit: The Desolation of Smaug Freeman Still - H 2013
Photo courtesy of Warner Bros. Pictures
"The Hobbit: The Desoluation of Smaug"

Earlier this month, Harvey and Bob Weinstein sued Warner Bros. and its New Line division, claiming that they are entitled to a percentage of revenue from the second and third Hobbit films. The move followed Warner Bros. initiating arbitration over the same issue.

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On Monday, the Weinsteins submitted papers in New York court with the goal of stopping WB's arbitration, and the decision on where the dispute will be tried could provide an early clue into which side is a favorite to ultimately prevail.

The controversy between the two sides emanates from an agreement from 1998 when the brothers owned Miramax, which at the time controlled film rights to the J.R.R. Tolkien fantasy and its sister property The Lord of the Rings. In exchange for the film rights, New Line promised the Weinsteins (via Miramax) five percent of the gross receipts of the "first motion picture" based on the books.

The Weinsteins say that unlike Lord of the Rings, Tolkien wrote just one Hobbit book and that Warner Bros.' unilateral decision to split the book into three films shouldn't limit their compensation to just last year's film. If there is any doubt about the interpretation, the Weinsteins point to a "most favored nation" provision of the contact that allegedly promises them payment in a manner no less favorable than Hobbit director Peter Jackson.

Meanwhile, Warner Bros. says the contractual language of "first motion picture" is pretty plain and unambiguous.

But there's another conflict between the two sides that is perhaps less showy, but no less important.

The 1998 contract has a forum selection provision as well as an arbitration provision. The forum selection provision provides that disputes arising from the enforcement or interpretation of the agreement go to New York court while disputes over "the definition, computation, accounting for or payment of the Contingent Compensation" will be heard in arbitration.

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The question is, what kind of dispute is this?

In a motion to stay arbitration (read in full here), the Weinsteins say, "The limited question raised by this action is whether the second and third installments of the three-part motion picture telling the story of J.R.R. Tolkien's The Hobbit are included within the contingent compensation obligations of the Sharing Agreement or, as Defendants maintain, are effectively 'remakes,' which are excluded from the Sharing Agreement's contingent compensation obligation."

On the other hand, in addition to declaratory relief, the Weinsteins did demand at least $75 million in damages. And in New Line's arbitration filing -- read here -- the company said that Miramax had already been paid more than $90 million in contingent consideration and frames the issue as one over whether the Weinsteins are entitled to additional contingent compensation.

The difference is subtle, but one side (Weinstein) seems to be emphasizing an interpretation of what those Hobbit films exactly are under the agreement while the other side (Warner) is emphasizing the issue of monetary calculation. The judge now steps in and decides how to proceed, which of course means doing an analysis of the very contract at hand -- which provisions are superior over others, what was intended to happen when the parties signed the contract, etc.

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner