the hobbit

A federal judge refused to dismiss claims by Warner Bros. and the Saul Zaentz Co. that the estate of J.R.R. Tolkien cost them “millions of dollars in license fees” from merchandising of “The Lord of the Rings” and “The Hobbit” when it filed a legal challenge last year contending that the studio and producer never had rights to license characters for slot machines and online games.

The decision is a victory for the studio, but by no means an end to the dispute over whether the flurry of merchandising of the lucrative franchise overstepped agreements, as the Tolkien estate claims.

In a written order issued Thursday, U.S. District Judge Audrey B. Collins rejected the estate’s efforts to dismiss counterclaims made by Warner Bros. and the Zaentz Co. in March, nearly five months after Tolkien’s heirs filed suit. The estate argued that the counterclaim was a “strategic lawsuit against public participation,” or an effort by Warner Bros. and Zaentz to stifle their challenge via pricey litigation.

But Collins wrote that it “defies belief that the plaintiffs would find the additional incremental cost of litigating the counterclaims to be so unbearable that they would choose to abandon their entire suit instead of incurring these costs, as, notably, all of the plaintiffs appear to be companies (or a trust) with significant financial resources.”

The estate, via Fourth Age, sued in November, claiming that it never granted rights to online and other gaming rights to Tolkien’s creations, citing the limitations of a 1969 agreement. Warners and Zaentz, in their counterclaim, contended that the estate was repudiating earlier grants and in breach of contract. The Tolkien heirs say that they could not have repudiated such agreements, as such rights were never assigned.

Collins also rejected the estate’s other efforts to dismiss on the basis that Warners and Zaentz’s claims, ruling that they “do not rise out of protected speech, are not barred by the litigation privilege, and are not disguised claims for malicious prosecution. Simply stated, 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.'”

Warner Bros. was represented by Daniel Petrocelli of O’Melveny & Myers, and Zaentz by Arnold & Porter in San Francisco.

The Tolkien estate, represented by Bonnie Eskenazi of Greenberg Glusker, filed suit along with Harper Collins Publishers. A decision has not been yet made on whether to appeal Thursday’s decision.

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