Precious Merchandising Rights: One Licence to Rule Them All

J.R.R. Tolkien’s “The Hobbit” and “Lord of the Rings” novels fascinated generations of readers long before the arrival of Harry Potter.  The commercial and critical success of the books was matched by the Lord of the Rings films, which collected 17 Academy Awards between them and are the highest grossing trilogy of all time (even beating the “Star Wars” series).  There is, it seems, a lot of money in “Hobbits.”

As Tolkien died in 1973, it has been left to the successors to his copyright interests to protect the Tolkien brand.  Once again, they find themselves, together with the original publisher of Tolkien’s novels (“the Plaintiffs”), commencing legal action against the current licensees of the film and merchandising rights, Warner Bros. Entertainment Inc. and its affiliates (“Warner Bros.”)

There is little love lost between the parties.  They only recently settled a dispute over royalties from the Lord of the Rings films.  This dispute, however, relates to the scope of Warners Bros’ licence to exploit Tolkien’s works to produce merchandise.  Apparently Warner Bros wants to take “Middle-Earth” to a world Tolkien could barely imagine: electronic online gambling.  The Plaintiffs claim that Warners Bros has entered into sub-licensing arrangements for the production of three particular products that the Plaintiffs see as an intolerable affront to the ‘Tolkien brand’: online slot (i.e. pokie) machines; ‘physical’ slot machines for installation in casinos; and online computer games.

The Plaintiffs argue that these products breach both their copyright and Warners Bros’ licence to exploit Tolkien’s works.  This licence, to make the novels into films and to produce merchandise, was signed with Warner Bros predecessors-in-interest in 1969 (“the Merchandising Agreement”).

The question is whether Warners Bros’ licence will extend to these three products.  It seems that much will turn on the word “tangible”, but you be the judge.  Here is the relevant clause in the Merchandising Agreement:

“solely and only upon and in connection with the manufacture, sale and distribution of…any and all articles of tangible personal property, other than novels, paperbacks and other printed published matter…”  [emphasis added]

The (American) Merriam-Webster online dictionary defines “tangible” as:

A: capable of being perceived especially by the sense of touch: palpable

B: substantially real: material

Clearly you can touch a slot machine in a casino, but it is substantially real, or material?  The argument that Warners Bros has a contractual right to produce (or allow others to produce) these kind of products becomes much harder for an online slot machine, or downloadable video game.  In fact, is any kind of video game tangible?  Arguably the only tangible part of a computer game is the disc it comes on, and isn’t that disc only but a medium in which to store intangible (i.e. intellectual property) material?

The plaintiffs are seeking damages, being the proceeds from the sale of the relevant products (plus interest and costs), and an injunction, on the basis that money won’t offset what the copyright owners (and many loyal Tolkien consumers) consider to be negative associations with products that are incongruous with the brand, and perhaps even the ethos, of Tolkien’s work.  The Plaintiffs also seek declarations regarding the scope of Warner Bros’ actual rights under the Merchandising Agreement, and in relation to a number of trade and service marks Warner Bros has registered, or seeks to register, regarding Tolkien’s works.

Who could have foreseen in 1969 the extent to which merchandising rights have now progressed from some of these original books and comics, whether it be “Green Lantern” business card holders to a toaster which imprints Darth Vader’s silhouette on your toast (which, to be honest, is actually pretty cool).  Certainly not Tolkien, or Gandalf.  Nor, perhaps, the lawyers who drafted the Merchandising Agreement.