Jackson sues New Line over 'Fellowship' profits

Following the success of “The Lord of the Rings” trilogy, Peter Jackson had the muscle to ink the richest directing deal in history for Universal’s “King Kong.” But Jackson still feels he’s been shortchanged on “The Fellowship of the Rings,” the first in the trilogy.

Jackson and co-writer and producing partner Fran Walsh, on behalf of their Wingnut Films, filed suit Monday in U.S. District Court in Los Angeles, alleging that New Line and its subsid Katja Motion Pictures failed to properly calculate revenue in a number of categories, including homevideo, merchandising and vidgames, for 2001’s “Fellowship.”

Damages in the suit are unspecified, but the figure could well run into the millions, given “Fellowship’s” blockbuster status. Pic grossed $314 million in domestic B.O., $556 million overseas, and more than $400 million in domestic homevideo.

The suit alleges breach of contract, unfair competition, breach of fiduciary duty and promissory fraud by New Line.

Specific allegations include that New Line improperly deducted costs relating to home video; used the incorrect royalty rate to compute DVD sales; charged excessive subdistribution fees; failed to pay for use of the pic’s script and Walsh’s song lyric in the vidgame; and incorrectly calculated merchandising participation.

In addition to bookkeeping irregularities, the suit also alleges New Line gave sweetheart deals to its affiliates when it came to working out licensing agreements, instead of shopping the movie around to get a bigger payday.

While these kind of cases, called vertical integration lawsuits, are usually seen in the television arena, they are rarer in film. Jackson’s suit was filed by Stanton “Larry” Stein, of Alschuler Grossman Stein & Kahan, who has successfully prosecuted television vertical integration cases. The suit alleges sweetheart deals in several distribution areas including theatrical, television, homevideo and soundtrack.

Fees fracas

Complaint notes Jackson and Walsh were owed significant first-dollar gross points in return for cutting their customary directing and producing fees in half and pledging to reduce budget overages from their compensation.

Profit participation suits are typically preceded by months of audits and negotiations, suggesting the dispute has been brewing for some time. Although the suit is only about profits on one of the films in the trilogy, the same issues could presumably crop up regarding the other two films.

Jackson’s transactional attorney, Peter Nelson, said: “We attempted to resolve our differences with New Line Cinema through the normal auditing process. That has proven unsatisfactory thus far. This lawsuit is the logical next step.”

A New Line rep said the company does not comment on pending litigation.

Jackson is working on “King Kong” for Universal.

Filed Under:

Follow @Variety on Twitter for breaking news, reviews and more