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July 15, 2009 2:10 PM

Nerd Law Heaven

Posted by Zach Lowe

On the day when the sixth "Harry Potter" film officially opens, The Am Law Daily finds it fitting that we have reason to write about the ultimate in popular nerd books turned movies: J.R.R. Tolkien's "Lord of the Rings" trilogy, which has grossed more than $6 billion in box office receipts, DVD sales, and other merchandising, according to Bloomberg.

Curiously, though, the heirs to Tolkien's estate haven't received a cent of that money, even though Tolkien sold the movie rights to his world-famous trilogy in 1969 in exchange for $250,000 and 7.5 percent of all future movie receipts. The heirs, represented by the Los Angeles-based Greenberg Glusker, filed suit against New Line Cinema, the subsidiary of Time Warner that made the films, claiming the studio has used all sorts of accounting magic worthy of Gandalf (or maybe Saruman?) to get out of paying the heirs, according to court records. 

The suit, filed last February, seeks $220 million for breach of contract and other charges, and it appears the case is headed for trial, as settlement talks have produced little progress, according to Bloomberg. 

Brad Brian and Mark Helm of Munger, Tolles & Olson are leading the team representing the New Line/Time Warner side of the litigation. Brian declined to comment when reached by The Am Law Daily. Bonnie Eskenazi, the lead Greenberg lawyer on the case, did not immediately respond to a message seeking comment.

The Time Warner argument boils down to this, according to court records: The 1969 agreement calls for Tolkien's percentage cut of the revenue to kick in only when the film's gross receipts reach a level that equals 2.6 times the cost production and a laundry list of other costs. The Tolkien side claims New Line is using calculations that inflate costs and expenses and artificially decrease revenue, including using a figure equivalent to 20 percent of home-entertainment revenue instead of the full figure, court records show. 

The studio claims that as the films generate more revenue, other parties involved, including stars such as Viggo Mortensen and Liv Tyler, are first in line to get royalty payments. Those payouts mean that expenses increase right along with revenue, meaning added revenue doesn't get the Tolkiens any closer to reaching the level at which they would start getting royalties. Got it? 

Perhaps most distressing for nerdy movie fans: The Tolkien plaintiffs also seek to block New Line from filming a long-awaited adaptation of Tolkien's "Lord" prequel, "The Hobbit." The Tolkiens claim New Line would lose the right to produce "The Hobbit" if it is found to have breached its contract for "Lord."

Right now, the two sides are battling over whether a jury or judge should hear the bulk of the case, court records show. A trial is scheduled to start in October. 

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