Middle Earth in the Digital Age: How Far Do Copyrights Go?

For those of you who finished the recent Hobbit film trilogy wondering when they’d see Middle Earth on the big screen again, don’t hold your breath. As far as bad blood goes, the animosity between the Tolkien estate and filmmakers makes the saga’s dwarves and elves seem like best friends. A recent Ninth Circuit decision denying an anti-SLAPP motion is only the latest chapter in an ongoing fight over the extent of contractual copyright agreements in a time before the Digital Era.

The story begins in 2012, when the Tolkien estate launched an $80 million lawsuit in the Central District of California over copyright infringement. In 1969, the Tolkiens sold the film rights to The Lord of the Rings and The Hobbit to United Artists. Included in this agreement were rights to merchandise “tangible personal property,” such as toys, clothes and stationary. The Lord of the Rings films ended up being blockbuster successes, generating nearly $6 billion in revenue, and the Hobbit trilogy has earned well over $3 billion. The films also created various downloadable video games, including mobile apps and, importantly, an online gambling game.

The Tolkiens claim they first learned about the LOTR-themed online slots game, known as “Online Slots”, in September 2010 through spam email advertising. The slot machine uses characters and events from the first LOTR film and was believed to be licensed by the filmmakers. For the Tolkien Estate, the use of J.R.R Tolkien’s beloved characters in something as “morally questionable” as gambling was a bridge too far. Their suit claims that the online gambling platform has outraged the LOTR fan base, with some commenting that it is “prostituting art,” and led to confusion that threatens the goodwill and image that the plaintiffs have cultivated over the Lord of the Rings universe. The defendant parties respond that a 2010 re-grant contemplated the inclusion of digital merchandise, and counterclaim on the basis that the suit has cost millions in lost licensing fees.

Since then, the litigation has been downright acrimonious between the parties. In 2013, the defendants launched a counterclaim seeking to disqualify Tolkien’s counsel, and the Tolkien Estate filed an anti-SLAPP motion to strike, claiming that the defendant counterclaims were retaliatory and “punishment” for the lawsuit. In Wednesday’s ruling, the Ninth Circuit affirmed the lower court’s denial, agreeing that the contract-related counterclaims lacked the characteristics of a SLAPP suit.

The outcome of this lawsuit has wider implications for copyrights and others who hold film and merchandise rights on literary classics. To accept the premise of the defendant’s actions would greatly expand the scope of merchandise rights and run roughshod over the original intent of the contracting parties. To be sure, “tangible personal property” is a legal term of art, referring to property that can be felt or touched. To extend that right to include digital downloads and an online slots game could have a perverse effect on the structure of many copyrights that would otherwise have allowed rights owners to profit on a lucrative digital venue for their works.

At the same time, it would’ve been unthinkable for the parties to have contemplated the development of the Internet as a medium for merchandise and products. At issue in this case is a matter of the scope of the original agreement, which Defendants claim offered them “exclusive, unlimited and unrestricted rights.” Furthermore, the Defendants note that the first video games were produced in the late ‘90s, and plenty of LOTR digital merchandise, including video games, was licensed during the film run of the original trilogy. The lawsuit, coming almost immediately after a 2010 re-grant that re-hashed the 1969 agreement, could have the effect of disrupting what would otherwise be the legitimate belief of the Defendants that digital merchandise was within the scope of the agreement, arguing effectively along the lines of estoppel. For the court to rule in favor of the Plaintiffs would expose many other copyright licensing agreements to similar scrutiny, threatening a fundamental source of revenue for the film industry, particularly for fantasy works based on popular novels.

Regardless of the outcome, one thing that is clear is that avid LOTR fans should not be expecting a new installment of the Lord of the Rings universe anytime soon. While the film rights to Lord of the Rings and The Hobbit were contracted to UA, the remaining books, most notably The Silmarillion, are still in the hands of Christopher Tolkien. Litigation over royalties delayed the release of the Hobbit trilogy, and an unfavorable decision in the present lawsuit would possibly foreclose a subsequent film until the final books enter the public domain in 2043.

Victor Guo is a J.D. candidate, 2017, at NYU School of Law.