While many people are flocking to the theaters to see the most recent film in The Hobbit series, a legal matter pertaining to the films is playing out in New York Supreme Court. Miramax Co., along with the company's former owners Ben and Harvey Weinstein recently filed a breach of contract lawsuit against Warner Brothers.
Breach of contract cases may be resolved in a trial. Other times however, they are settled through another method such as arbitration. One source indicates Warner Brothers is hoping to resolve the matter via the latter route.
Miramax sold the rights to both The Lord of the Rings and The Hobbit series to Warner Brothers in 1998. In exchange for the rights, Miramax received $11.8 million and 5 percent of the gross receipts of any of the movies made. That percentage of gross receipts pertained specifically to "first motion picture" based on each book. It would not receive anything on any film remakes that might be made in the future.
While certain portions of that contract were fulfilled without issue, the contract was silent as to how the matter should be handled in cases where a book was divided into multiple films. In making films based on The Hobbit series, this is exactly what happened and Miramax is seeking payment on receipts owed from each of the three films that make up the first book. Warner Brothers claims that only the first film made in the series is subject to those payments and the second and third films are considered remakes.
As this case illustrates, the language of a business contract is extremely important. If potential situations are not adequately accounted for in the verbiage, it is possible that a situation such as this one could arise. It also highlights the importance of working with lawyers who practice in the area of business law both on the front and back end of such legal transactions.
Source: Inside Counsel, "Movie moguls sue Warner Brothers for "Hobbit" breach of contract," Zach Warren, Dec. 13, 2013