The Pooh Papers
An AR Exclusive: P0OH HEIRESS SLAMS 'DUBIOU.S.' DISNEY RIGHTS SUIT
by Joe Shea
American Reporter Correspondent
HOLLYWOOD, Nov. 16, 2002 -- The heiress to a potential billion-dollar fortune generated by royalties from Winnie the Pooh today slammed a new lawsuit over rights to the beloved bear filed Nov. 5 in Federal court by the Walt Disney Co., and a renowned copyright attorney says Disney's claims that it has an agreement to recapture her rights violates copyright law.
The case has pitted American heirs of Stephen Slesinger who own trademark and derivative rights to Pooh that they license to Disney, against Clare Milne and Minette Hunt, the British granddaughters and heiresses of A.A. Milne, the author of the original Winnie the Pooh books, and their illustrator, Ernest Shepard. Together with trustees including the elite Garrick Club in London, they own copyrights on four best-selling books by Milne. Pooh-related products generated $6 billion in third-party retail sales in 2001, Disney consumer merchandising executive Lou Meisinger said in March.
The studio's complaint for declaratory judgment is the latest move in the 11-year-old lawsuit in Los Angeles Superior Court between the 79-year-old widow and only child of Slesinger, an American branding pioneer, and the $25-billion Burbank, Calif.-based Walt Disney Co., which licensed the rights from the Slesingers in 1961 and rewrote the contract in 1983. The new copyright suit was brought by Disney Enterprises, based in Delaware.
"Disney is doing this as a negotiation tactic for settlement and nothing more. They are trying to use it as a big hammer over our heads, but they must think we were born yesterday. It's just another expensive fire we have to put out," said Pooh heir Patricia Slesinger in an exclusive interview with The American Reporter.
"There are a lot of aspects of it that at first blush seem dubious," copyright expert and attorney Roger Zissu told The American Reporter.
One key issue in the new case, filed in U.S. District Court here (Case No. 02-08508FMC) is Disney's statement that, after Milne and Hunt served termination notices on the Slesingers on Nov. 2, "Disney entered into agreements with Milne and Hunt regarding the respective rights that will revert to them under United States copyright law upon the termination date."
But that is flatly contrary to the 1998 copyright law authored by former singer and Congressman Sonny Bono, Zissu said.
"An agreement for a further grant between the author and the author's successors may only be made in the two-year period with the original grantee or its successor in title," he said. "The only persons they could make such an agreement with are the Slesingers."
Zissu, who is with the New York firm of Fross, Zelnick, Lehrman & Zissu, was upheld by the U.S. Supreme Court in a case he won at trial over the Nation magazine's use of President Gerald Ford's memoirs, and also resolved a series of five lengthy and widely-publicized lawsuits brought by the heirs of Tarzan author Edgar Rice Burroughs against MGM for termination of copyrights.
Disney said it has persuaded two British women, Clare Milne and Harriet Minette Hunt, granddaughters of Milne and Shepard, to agree to sign the rights held by the Slesingers over to Disney in 2004 - if the Milne-Hunt termination notice is successful.
The rights Milne and Hunt want to terminated have produced some $66 million in revenue for the Slesingers, most of it in the past six years, and are at the core of a separate lawsuit over Disney's alleged failure to pay royalties the studio owed on merchandise, computer software, videocassettes and DVDs.
A trial on the earlier case, which was filed in February 1991 in Los Angeles County Superior Court and is the oldest civil case in the county, has been set for March 5, 2003. Attorneys for the Slesingers say the studio may owe them as much as $1 billion if their claims are proved. They are reprepresented by the well-known firm of Greenberg, Glusker, Fields, Claman & Machtinger, which won almost $300 million from Disney in a lawsuit by former studio president Jeffrey Katzenberg.
The actual copyrights to the books in the United States were granted by the Milnes to publisher E.P. Dutton over a five-year period in the 1920's. But Disney attorney Daniel Petrocelli recently told the Los Angeles Times' Meg James that Clare Milne had an "independent copyright" that the studio had not purchased with other rights in a sale last year.
Disney announced on shortly before its Nov. 7 earnings report that it had persuaded the granddaughters to "recapture" rights from the Slesingers granted by Milne and Shepard in 1930 and 1932, and said the Slesingers' royalties from Disney - estimated at $12 to $13 million per year - would end in 2004.
After that, "they're out," Disney spokesman John Sprelich told the Los Angeles Times and Variety, whose Janet Shprintz broke the story on Nov. 4. Sprelich said the terms of the agreement with Milne and Hunt are confidential. Disney stock soon began a substantial recovery after hitting its lowest price in eight years in mid-August.
Michelle Bergmann, Disney chief of corporate communications, was unavailable for comment on this story, her office said.
The Slesingers' noted Hollywood lawyer, Bert Fields, in a comment to the Times, called the new complaint "a devious attempt by Disney to get out of its obligation to pay royalties that it promised under the 1983 agreement. It's a crazy theory and it's going to backfire."
Meanwhile, the American heiress of Stephen Slesinger had harsh words for the studio's efforts to break their agreements with Milne. Patricia Slesinger, 49, spoke at length with the American Reporter about the new Disney suit and related issues in the only interview she has ever given about the case.
"These are very complicated copyright issues that span from the 1909 Copyright Act to now," she said at her mountaintop home in Beverly Hills. "There are also very complicated issues involving trademark, contract rights as well as foreign rights, none of which are affected by this claim of termination," said Slesinger, the only child of Stephen Slesinger, who died in 1953 at the age of 53.
"The difficult thing is attempting to determine what is a derivative copyright which cannot be terminated under the derivative exclusion of the Sonny Bono Copyright Term Extension Act," she said.
"Clearly, none of the trademarks, or copyrights in any of the derivative work created for television, motion pictures, books, computer software or any future technology or merchandise can be terminated," she said.
"Disney has paid royalties for the last 40 years on these derivative works, so we don't think any royalty due to us will be affected and we don't think any of our rights to terminate Disney's rights are affected, either," Slesinger said. "At our first look, this whole thing seems to only relate to a few black and white illustrations in four copyrights that were registered in the 1920's by E.P. Dutton, and we have to determine whether those in themselves were derivative works or original.
"I'm not a copyright lawyer, but it looks like Disney can't stop paying any royalty to us and can't stop us from terminating the rights we granted them. And it's really a shame that they are trying to tangle up the Milnes in this lawsuit, because the Milnes have always known that if we got a dollar, they would get two, according to our agreement.
"So without any cost or headache to them, when Disney announced to its shareholders that it owed $200 million to Slesinger, it would have automatically owed $400 million to the Milne people. And when the press said our lawsuit could be worth a billion dollars, the Milnes were entitled to $2 billion because that's the way our agreements were written - Milne got twice what we got," she said.
"And I'm very sad that these men in England who are lawyers and trustees and receivers are getting all this money and poor Clare Milne, who probably doesn't even know what's going on, got three percent or less, and Minette Hunt, Shepard's heir, got four percent, when according to our records she was entitled to 50 percent. And the rest of the money seems to have gone to agents, commissions and lawyers' fees and the Garrick Club wine cellar. I don't think that's what their grandfathers intended," she said.
In another startling development, the American Reporter has learned that Disney's own lawyers argued at length - in a 1981 letter to Disney general counsel Peter Nolan and in other letters written since 1938 - that the Pooh works by Milne fell into the public domain when publisher E.P. Dutton registered their copyright in its own name at a time when the 1909 U.S. Copyright Act required that the author - if he was the owner - sign the copyright registration document. Dutton registered the copyrights to When We Were Very Young, The Hundred Acre Wood, Now We Are Six and The House at Pooh Corner between 1924 and 1929, when the 1909 Copyright Act was in force.
Failure to use the true owner's name placed the properties in the public domain under that act, Disney lawyers argued in correspondence that became part of the public record in the case when it was opened last January.
If so, that would mean the copyrights Disney is trying to recapture no longer existed in 1930, when the Milnes granted Stephen Slesinger the right to create trademarked commercial uses of Pooh, such as a line of clothing, recordings and radio shows, and in a 1932 amendment to the 1930 agreement. Those rights owned by the Slesingers are separately granted by the creator, Milne, who as "creator" could grant other commercial rights such as trademarks, a stronger form of protection that is outside the scope of the Copyright Act. Milne sold many kinds of rights to the properties, creating a legacy of confusion that persists to this day.
But Disney has also argued the public domain issue the other way, most recently in a 1956 case, sources say.
"It sounds like Disney is on both sides of that dispute. You have to ask them what they argued when they were on one side of the dispute and what they argued when they were on the other side," said Zissu, one of the nation's premier copyright experts. "They're having an internal debate. What they meant and whether they were right the first time or the second time are questions they have to resolve for themselves."
In his contracts with Slesinger and Disney, Milne never says until 1958 that he in fact does own the copyright, but rather that he has the "power" to exercise it. That may reflect a separate agreement with E.P. Dutton, whose copyright appears on the original 1924 book, When We Were Very Young. Publishers often reassign such rights to authors on request (and that is standard practice at The American Reporter).
It is also possible that the copyright was assigned to Dutton and then reassigned to Milne at a later time, the sources noted. One attorney and copyright expert hired by the studio warned that Disney should never try to assert their claim in court. A reading by The American Reporter of portions of the legal analysis indicated that the insistence on secrecy hoped to avoid use of the rights by others who might be convinced the works are in the public domain, as Disney's legal analysis suggested.
A court ruling would be necessary to determine that issue before the public could be free to use Pooh books for profit, however. Yet in addition to its trademarks, Disney may have represented that in its thousands of contracts with sub-licensees that the property was not in the public domain, as contracts frequently must assert, sources familiar with the documents say. That may have been technically true, they say, until a court chose to rule otherwise.
The facts as Disney's lawyers argued them in 1981 had been kept a closely-guarded company secret since 1938, the date of the first such analysis. In 1982, when the Slesingers were renegotiating their contract with Disney, Disney lawyers asserted the public domain argument for the first time to the American heiresses of Stephen Slesinger, Shirley Slesinger Lasswell and Patricia Slesinger, as a bargaining tactic.
When the Slesinger heirs suggested that Disney should reveal its position to Sears & Roebuck, which in 1967 had sub-licensed most Pooh merchandising rights from Disney, the studio abruptly dropped its argument, family sources say.
Disney does not appear to have disclosed the public domain issue in any SEC filing, even while its failure to reveal a potential billion-dollar exposure to stockholders in the Pooh case has resulted in nine shareholder lawsuits now pending against the company. Since Pooh properties earn $6 billion a year at retail, as Disney consumer merchandising chief Lou Meissinger told the law.com Website in March 2002, and contribute several billion dollars to Disney's bottom line each year, the idea that they may not have been protected by copyrights would strike terror into the heart of even the most fearless copyright litigator.
In any event, the studio has since regained copyrights, the sources now say. Disney paid the equivalent of $320-$350 million in British pounds to the Milne heirs for worldwide rights in 2001 - except for what Disney's lead attorney, O.J. Simpson nemesis Daniel Petrocelli, called Clare Milne's "independent copyright."
That left the Slesingers holding the U.S. and Canadian commercialization rights that underlie much of the $6 billion Pooh retail industry and produuce an estimate $1 to $2 billion per years on Disney's balance sheets each year. Roy Disney, in a 1947 memo published in the Los Angeles Times this year, worried that the Milnes had "fouled up" the rights and that those held by the Slesingers were far more extensive than the studio first believed.
The Disney filing says that the U.S. Copyright Act of 1976 allows heirs to reclaim "all rights 56 years later to works authored by their parents and grandparents," and that the Bono Copyright Term Extension Act added "a new termination device, giving certain heirs of deceased authors additional rights to terminate, in specified circumstances, 'grants of of a renewal of copyright or any right under it,' 75 years after the subject copyrights commenced."
However, says Zissu, the phrase "all rights" in Disney's complaint may be misleading. The only rights that can be terminated are rights under copyright - "under this title, which means the Copyright Act," he said.
"The statute provides for certain exclusions from what can be terminated, and there's not much dispute about that," he said. "The rights that can be terminated are rights with respect to copyright in the United States. You cannot terminate rights such as trademark rights. There's also another exception for derivative works," he said.
Derivative works are those based on characters, such as the Winnie the Pooh merchandise Disney sells at Disney Stores and its worldwide theme parks. With a minor exception, those are the only kind of rights the Milnes granted the Slesingers, a family spokesman told The American Reporter, and are worth billions to their owner.
Los Angeles Superior Couirt awarded $200 million in back royalties to the Slesingers for undisputed rights, Disney attorneys say. The studio challenged that award and won an independent review by court-appointed accountants that will help the trial judge, Ernest Hiroshige, determine how much the studio must pay the Slesingers on rights they indisp[utably own. The other part of the trial next March will determine what other rights may have been covered by the 1961 and 1983 contracts, such as videocassettes and DVDs, for which Disney has not paid the Slesingers any royalties since 1983.
What is most baffling about the claim, Slesinger family sources told the American Reporter, is that there is no representation concerning copyrights in the original contracts between Milne and Stephen Slesinger Inc., or between the Slesinger heirs and Disney, who signed contracts in 1961 and 1983.
In fact, the only representation concerning copyright of the work was made by Milne, who either sold or licensed his copyright to E.P. Dutton in 1924, in a 1961 contract with Disney. In that, Milne stated that he had obtained a renewal copyright on his four books in 1958, and provided the registration number.
"There are plenty of trademark rights granted to them. That seems fairly undisputed," Zissu said. The derivative rights may be granted under the Copyright Act but are specifically excluded from termination rights, he added.
Disney may have inadvertently opened a nasty can of worms, Zissu suggested in a telephone interview from New York.
The complaint "poses more questions than it answers. It seems in its own way to throw doubt on itself," Zissu said. "I think that there are more questions that Disney has to answer as to what the meaning of this is, what the purpose of it is, and whether it is consistent with its own prior positions, assertions, and its business goals."
Finally, the copyrights sought by the studio would only allow Disney to own the original black and white illustrations of Pooh, which were based on statues in the public domain, and the specific text of the original four books. The huge number of derivative uses based loosely on the original text and illustrations cannot be recaptured, the sources say.
Some of the rights, in fact, appear to be owned by Metropolitan News, a newspaper distribution company started and owned by the New York Evening Post, which later became the New York Post. The original stories were published as newspaper and magazine articles in the United States and England in 1919.
Clare Milne, the granddaughter of A.A. Milne, was adjudged mentally incompetent under British Mental Health Act several decades ago, and her lawyer and receiver, Michael Joseph Coyne, agreed to sign over the rights if they are recaptured, the sources noted. Harriet Minette Hunt's claim is based on an agreement between Milne and Shepard that the illustrator would receive a 50 percent share of receipts from the work, but that right was never exercised by his wife or daughter and may now be claimed by Shepard's granddaughter, who is known as Minette Hunt.
Finally, sources say, if the rights granted by Milne to Stepehn Slesinger were recaptured, that would merely restore the 1961 contract negotiated by Walt Disney himself with Shirley Slesinger Lasswell, the widow of Slesinger. The 1961 contract calls for the heirs to receive 4 percent of the gross proceeds of Pooh merchandise sold by Disney in the U.S. and Canada, and was changed to 2 percent of the worldwide gross in the 1983 agreement, the sources say.
Yet another complication is that specific rights that the British heirs hope to recapture are those Disney has argued it pwns, such as those on videocassettes and DVDs. Disney appears to be arguing in the Superior Court case that it has those rights and argues in the U.S. District Court case that it will get them from Clare Milne and Minette Hunt when (and if) they recapture the rights from the Slesingers. A family spokesman says that the family owns those rights, and that they were included in their broad license to Disney in 1983.
Asked whether Disney had persuaded a mentally incompetent person to move to recapture the rights, Disney litigator Ralph Shapira of O'Melveny & Myers, who provided The American Reporter with a copy of the studio's motion at a deposition last week, said he did not know.
The filing, provided to The American Reporter by Shapira, provides the registration numbers of the original copyrights, but those were never licensed to Slesinger, the family says. None of those matches the copyright renewal number Milne provided to Disney in his 1961 contract with the studio. In fact, say the sources, the most bizarre aspect of the Disney move is that Disney itself appears to hold the copyrights it is trying to recapture through the British heirs. They were revoked and reconveyed under the terms of the 1983 agreement as well, the Slesingers say.
Disney's Nov. 5 motion for declaratory judgment - i.e., a request for a federal judge's ruling to clarify the 1998 Sonny Bono Copyright Extension Act - may also be dismissed as untimely, the sources add, because the Milne and Shepard heirs have not yet recaptured any rights.
"The statute contains provisions which state when you can terminate, what the effect of it is. Anybody can, if they want to, try to go to court," said Roger Zissu, the copyright expert, "but whether it's a valid proceeding is really the question, I think. There are a lot of aspects about it that at first blush seem dubious," he said.
AR Correspondent Joe Shea has been deposed by the Walt Disney Co. as a witness in the Pooh case concerning events in 1983.