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Troubles in Middle Earth? New Line Being Sued by the Estate of J.R.R. Tolkien

by Alex Billington
February 11, 2008
Source: Variety

Talk about kicking New Line when they're already down! The Tolkein Trust, a British charity that manages the estate of legendary author J.R.R. Tolkien, and publisher HarperCollins decided to file a lawsuit against New Line Cinema earlier today for $150 million. Their claim is that they have not received any of the gross profit participation payments from the three Lord of the Rings films. Not only is this probably the final nail in New Line's coffin, but I'm starting to wonder if New Line actually did horde the billions of dollars that they made from the three Lord of the Rings films. And unless this gets resolved quickly, this might put a damper on the upcoming Hobbit movies that are supposed to hopefully be released starting in 2010.

The article below has been divided into two pieces: the first, which begins immediately below, includes all of the facts and details regarding the lawsuit; and the second, which begins after the line break, is an opinionated discussion on the situation and potential outcomes.

In addition to the $150 million in compensatory damages, the suit seeks punitive damages, and most important, a declaration from the court that the plaintiffs can terminate any further rights New Line may have to the Tolkien works under their initial agreements. This means that if The Tolkein Trust and HarperCollins win the case, New Line no longer has the rights to make The Hobbit. According to the suit, New Line has failed to pay the plaintiffs any portion of the gross profit participation to which they are entitled under their deal. The lawyer who represents The Tolkein Trust made a very commanding public statement on the situation.

"New Line has brought new meaning to the phrase 'creative accounting.' I cannot imagine how on earth New Line will argue to a jury that these films could gross literally billions of dollars, and yet the creator's heirs, who are entitled to a share of gross receipts, don't get a penny."

As outlined by the suit, the Tolkein trust is entitled to 7.5% gross profit participation under an agreement that was signed in 1969 with United Artists. Over the years, the rights have passed from UA to Saul Zaentz to Miramax and into the hands of New Line Cinema.

Where is Michael Clayton when we need him? For the sake of wanting to get The Hobbit movies actually made with Guillermo del Toro directing, I just want New Line to win and get this settled. However, I'm wondering if all these other companies are trying to bring up lawsuits because it's such an "easy" thing to win, especially with the public watching, or whether there actually are this many issues with New Line.

New Line recently settled a lawsuit with Peter Jackson who had claimed that he was paid less than the amount he was owed in connection with profit participation. That lawsuit had been ongoing for three years and was just settled last December. In addition to Jackson, producer Saul Zaentz, who once owned the rights to the Tolkein properties, has sued New Line multiple times over profit participation. Zaentz' most recent suit claims that New Line has refused to make records available to his auditors in order for them to verify whether his profit participation statements are accurate. The Tolkein Trust is also saying that New Line destroyed documents and has refused to allow an audit on the second and third films.

The three Lord of the Rings movies were an incredible success, with Return of the King becoming the second most profitable movie in history (behind Titanic) and one of only three movies to surpass $1 billion worldwide. The total box office earnings for all three films tops $2.92 billion. That amount is not even counting the reported $3 billion that the films have made on DVD as well.

I'm curious if New Line was so shocked (and ecstatic) at the financial success of the Lord of the Rings series, that internally they became a bit greedy. Obviously when films like this become a huge success and make a LOT of money, every last person involved wants to make sure they get every last penny they're owed. It's just odd that New Line has become the most publicized target for lawsuits involving those pennies. It makes me wonder whether they are just targeted because Lord of the Rings was one of the most financially successful movie franchises ever, or because they were actually a fraudulent company.

The one thing that seems certain now is that New Line will probably go the way of Orion and United Artists - I think they're going to finally kick the bucket. Consideration of their demise began after The Golden Compass failed at the box office. It was most recently confirmed by Colin Farrell when talking about his movie Pride and Glory, in which he said that New Line just doesn't have any money to promote that movie because of Golden Compass' failure. I've also heard talk from industry insider Nikki Finke that New Line might cancel the contracts of its current top executives when their contracts expire this year and in turn be absorbed into Warner Brothers. With this lawsuit now in place, not only does that seem inevitable, but it seems likely to happen earlier than planned.

It would be devastating to see New Line fall apart and The Hobbit's rights go with it. I am not alone when I say that I was more than excited to see the legal issues between Peter Jackson and New Line resolved in December, because it meant we'd finally see The Hobbit, even if it wasn't for another 2 or 3 years. And then when the rumors started pointing towards Guillermo del Toro as the new director, I instantly knew that we'd have a series that could turn out incredible as Lord of the Rings. To hear that everything is most likely going to be put on hold again until this case has been resolved is quite depressing. I would not at all mind New Line's demise, as long as The Hobbit's production progression isn't affected.

I don't want to take a side and considering I don't really know all of the inside details, I'm not even going to try. All I know is that I want this to be resolved quickly, peacefully, and happily for everyone involved. Lawsuits are never fun, I personally know that, and for the sake of all of the Tolkien fans out there, we want to see The Hobbit get made! Good luck New Line Cinema, wherever you end up!

Explore tags: Discussion, Editorials, Movie News, Opinions

Steph K.

Correct me if I'm wrong, but didn't J.R.R. Tolkien sell his rights to Saul Zaentz (d.b.a. Tolkien Enterprises) in the 1960s or early 70s, right before he (JRRT) died? If so, did that contract include relinquishing profits from all future projects? If that is the case, then the Estate doesn't have a case. Christopher Tolkien and the family members could have been involved (as 'consultants') in production decisions on Peter Jackson's movies from the very beginning, but the entire family decided to refuse assistance and boycott anything and everything having to do with the movies. (Rumour has it, when one of Tolkien's great-grandchildren went to New Zealand to see what was going on, his uncles and aunts told him not to come to any more family events; unsubstantiated, but that's what's circulating on TORn, I think.) So now, five years after ROTK, seven years after FOTR, C. Tolkien's accountant suddenly wakes up and says, "These people in Hollywood made 42 bazillion dollars--why aren't you getting any?" It just appears to me that everyone wants to get onto the gravy train a few years too late. Nor do I think HarperCollins (or Houghton-Mifflin) has a case for profits, since they were the exclusive publisher for scads of tie-in books and new editions of the original books (with photos of the actors on the covers) . (I know because I have quite a few of them on my bookshelves--19 at a quick count, and that doesn't include the History of Middle-earth, which I haven't started buying yet...) Didn't it occur to the Tolkien family in the 1990s (when PJ started writing a script) that if they assisted him in making these movies, then they would have a legitimate claim to a share of the profits? Again, why didn't the family's legal representative read the contract of the sale of the properties and identify which intellectual property rights were kept by the family and which rights were transferred to Tolkien Enterprises? It seems to me that everyone even remotely related to Professor Tolkien wants to get their dime, or quarter, out of this phenomenon. I'm a fan; I'd just like to see Ian McKellen back as Gandalf the Gray, and WETA Digital's creation of Smaug. And I really, really, *really* hope that Fran Walsh, Philippa Boyens, and Peter Jackson write the scripts for "The Hobbit" and the interquel movie (which I hope will be created from information in "The Silmarillion" and HoME). ...my road goes ever on and on... Miranduviel the (wizard-seeking) Elf-Hobbit
NAR

"So now, five years after ROTK, seven years after FOTR, C. Tolkien's accountant suddenly wakes up and says" It's also possible that it wasn't a "sudden wake-up", they were arguing and waiting for the money for five years and just decided that enough is enough. I might add that it's also possible that the movies actually didn't make that much money, it was just inflated for marketing or other purposes and when New Line Cinema has to pay the money based on this inflated value, then they simply don't have the money.
Steph K.

In response to NAR: You have a point that they may have been waiting, but five years?! Listen, if I think someone's mailing me a check, I'm janie-on-the-spot every afternoon at the mailbox until I get it, or I'm on the phone asking where the heck my money is! I think that anyone who waits five years for a royalty check is not managing their business in a fiscally sound manner. But even before waiting for a royalty check, the first question is, which rights did Saul Zaentz purchase from Tolkien, and what can be done with them, and does it say that profits have to shared with the Estate? Those are the questions that need to be answered by Zaentz or the Tolkien family: what are they legally entitled to receive in profits? Also, New Line didn't have to inflate how much money they made; there was income from the worldwide cinema runs of the movies, income from the first DVDs, income from the extended edition DVDs, and income from the third 'special' DVDs, as well as the intial soundtrack releases, then the complete soundtrack releases. That's just the movie itself; now calculate how much money NLP made from the licenses to make all those tie-in items: action figures, fine reproductions from Noble Collection, high-end costume replicas from Medieval Collectibles, Halloween costumes from Rubie's, and bookmarks, journals and deluxe sets of paper items from Antioch (how do I know? I have quite a few of these things on my bookshelves). And this isn't everything: there are dozens of things I haven't mentioned. After FOTR blew every other movie out of the water in 2002, there were even more licensees leaping to get onto the gravy train with licenses relating to the next two movies. If you want a blow-by-blow account of the creation of Jackson's movies and the avalanche of spinoffs (and spin), read Kristen Thompson's book, "The Frodo Franchise: The Lord of the Rings and Modern Hollywood" (Berkeley: University of California Press, 2007; ISBN: 978-0-520-24774-1). It'll be a real eye-opener, make no mistake. (No, I have no relationship to the author or the publisher: but I did get the book as a Christmas gift, and it's an amazing story of how a phenomenon was made.) I'm not a lawyer (although I was briefly a legal secretary), but I hope the Estate and the Tolkien family receive whatever profits they're entitled to. It would be nice if New Line were more forthcoming with their financial information: they could have solved the disagreement with Peter Jackson simply by having the FOTR books audited. Refusing to do so makes it look as if they have something to hide, which may not be the case. Failing to live up to the letter of the contract with the many New Zealand actors who portrayed roles-in-prosthetics also doesn't enchance their (NLP) reputation with the LOTR fans who pay attention to this stuff. I hope for the best: a good translation of "The Hobbit" from book to screen, and hope the 'interquel' (interval sequel) movie relies on information from Professor Tolkien's other documents about the Ring and Middle-Earth... and I'm still waiting for Smaug! Miranduviel
http://www.drduvel.net Dr.Duvel

ok, I'm no lawyer, but .. to quote from the original article : " ... and most important, a declaration from the court that the plaintiffs can terminate any further rights New Line may have to the Tolkien works under their initial agreements" also : "Their claim is that they have not received any of the gross profit participation payments from the three Lord of the Rings films." which suggests to me that there was an "Initial Agreement" regarding "gross profit participation payments ". Isn't this exactly what Jackson was suing for ? I like New Line, I loved the films, I would love to see them make the Hobbit, but if they have in fact squandered or embezzled their profits, without the appropriate payments to other partners, then they deserve to collapse under this. "Sorry guys, we forgot to carry the 1" is one thing, but "no, no I tell you, you cannot look at my secret numbers" is quite another.
Steph K.

Dr.Duvel on Feb. 12, 2008: "Sorry guys, we forgot to carry the 1," is one thing, but "no, no I tell you, you cannot look at my secret numbers," is quite another. Yes, it IS quite another thing, and most emphatically NO, I am *not* defending NLP--because of them, they've screwed up the timeline for the release of "The Hobbit" and the interquel movie. It appears that I misread this article or was relying on older articles for my info. (...hmm, must be a few blonde roots in the way of the eye nerves...) Let's make a short list of lawsuits against NLP (so we know how deep the bantha pudu is): Peter Jackson sued because he felt their FOTR records weren't accurate; the New Zealand actors sued because they felt they weren't being adequately compensated for their work; Saul Zaentz sued because *he* felt the royalties he received were based on inaccurate numbers; and Christopher R. Tolkien and the Trust (a charity) are suing NLP because they did not receive profit participation moneies. This does not look good for NLP, particularly when the new honcho at Warner Bros. is looking at budgets and thinking about axing (or not renewing contracts for) people. Again, I state: New Line Cinema looks shifty because they are not permitting outside auditors to examine the financial books (for any/all of LOTR). Allowing Bob Shaye to become emotional (in print) and say rude things about PJ also does not endear him to PJ's fans. Here's what I missed the first time (from our source article, above): "As outlined by the suit, the Tolkein trust is entitled to 7.5% gross profit participation under an agreement that was signed in 1969 with United Artists. Over the years, the rights have passed from UA to Saul Zaentz to Miramax and into the hands of New Line Cinema." Don't Lynne and Shaye realize that, if people keep pointing lawsuits at NLP and yelling "cheaters!", that sooner or later the IRS will become interested in what they're hiding? NLP may be able to keep PJ from examining their records--but they can't keep the IRS from examining their records. And the IRS is like vampires *and* the Borg--they WILL have *all* your blood, and resistence IS futile! And when the IRS expresses interest (if they do), I think Warner Bros. will take over NLP, force them to open the books, and come clean about what (money) went where when, and to whom. One would think that *someone* in NLP's accounting dept. would mention the IRS to the executives, but, then again, I get the feeling that these people don't actually *TALK* to each other, face-to-face, in real time. When all of one's communication with others is ONLY through email, PR-speake, spin-speake, and (most importantly) lawyer-speake, then major, massive miscommunications like this will happen. (...hmm... double-good-govthink-speak much?) If NLP performed a complete audit when asked, or allowed an outside auditor to do so, they would have performed in good faith and could have been able to show everyone where profits went. They did not allow their books to be audited, which implies they have not/ are not disbursing profits in the way they're contractually obliged to do. (Ow! I hate writing in strictly grammatical English! Most people can't understand it, anyway...) I really hope Warner Bros and the IRS let NLP (and especially Bob Shaye!) hang in the breeze (and I'm supposed to be polite here, so I can't mention from which body part/s) for refusing to negotiate with other contractees and delaying production & release of "The Hobbit" and the interquel movie. We *could* have seen "TH" in 2005 or 2006 if they'd gotten and kept their corporate act together, but no, NLP had to go to the financial Dark Side--and if they get absorbed by Warner Bros., they won't have suffered nearly enough, in my opinion. And me? I miss Gandalf and Saruman so very badly... ...and I'm still waiting for Smaug!!! Miranduviel