Warner Bros. Can Sue Tolkien Estate For Breaching 'Hobbit' Contract

Manu Bennett Hobbit - H 2014
Warner Bros.

A big-ticket legal fight between Warner Bros. and the J.R.R. Tolkien estate over the scope of rights governing The Hobbit and Lord of the Rings has been in a holding pattern for a couple of years. But the dispute figures to speed up significantly after the 9th Circuit Court of Appeals affirmed that Warner Bros. can assert counterclaims alleging that Tolkien's heirs have breached a contract.

All the way back in 2012, the Tolkien estate and its book publisher HarperCollins filed a lawsuit claiming that a decades-old rights agreement entitled the studio to create only "tangible" merchandise based on the books, not make digital exploitations including games and online slot machines. That triggered a reaction from Warner Bros. alleging that the Tolkien estate's repudiation cost it to miss out on millions of dollars of licensing opportunities. 

Tolkien's attorneys attempted to stamp out the counterclaim under California's anti-SLAPP statute. Basically, they argued that Warners was interfering with their right to petition under the First Amendment.

A district judge disagreed that what Warner Bros. was doing was making "disguised claims for malicious prosecution" and wrote "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 Tolkien side challenged the assessment on appeal, and while the two sides continued with discovery, the appeal paused any big developments in the case. That's been the state of things since July 2013.

Today, in a super-short memorandum, the 9th Circuit rules that the district judge got it right.

And so Warner Bros. will be allowed to proceed with its theory that alleged contractual breaches by the other side meant it suffered lost license revenue and also decreased exposure for the Hobbit films. The last of the Hobbit trilogy came out this past December and grossed nearly a billion dollars worldwide.

Now the sides could be looking at a trial soon, but not before both parties attempt to win the case on summary judgment.