Vol. 12, No. 3,009 - The American Reporter - October 19, 2006

by Joe Shea
American Reporter Correspondent
Hollywood, Calif.

Printable version of this story

LOS ANGELES, August 14, 2001 -- Two of the most famous lawyers in Americ= a quietly collided Monday in a California courtroom over royalty payments o= n one of the most famous and lucrative literary characters ever created, wi= th Hollywood superlawyer Bert Fields saying the owners of U.S. and Canadian=

rights to exploit Winnie The Pooh are owed hundreds of millions of dollars= by the Walt Disney Co. on a contract first negotiated by Walt Disney himse= lf, and the other, O.J. Simpson nemesis Daniel Petrocelli, saying anything = owing under an agreement with the man who created Mickey Mouse and Donald D= uck has already been paid.

The long-running court battle began in September 1991 over the royaltie= s on a vast spectrum of products that feature the likeness of Winnie The Po= oh, Tigger, Rabbit, Christopher Robin and other children's characters creat= ed by English author A.A. Milne, which Disney projected would earn some $6.= 2 billion in gross revenues this year.

It is finally nearing an end, both lawyers told The American Reporter,= with a trial date likely some time in early 2001.

Field and Petrocelli spoke separately with the reporters after an all-= day court hearing on an independent audit conducted at the request of Super= ior Court Judge Ernest Hiroshige. The audit covered two representative yea= rs, 1988 and 1994, and was designed to determine whether the Disney Co. und= erpaid Stephen Slesinger Inc. -- the heirs of Stephen Slesinger, who bought= the rights from Milne in 1929 -- for its use of the characters on everythi= ng from toothbrushes to computer programs.

Disney claims an audit showed one royalty payment of more than $600,00= 0 was due on $93 million of unreported revenues from Pooh items sold in the= me parks, which it paid along with about $5,000 found in other audited area= s.

"We don't believe that they are owed anything," said Petrocelli. =

Disney Makes, Sells Toys

In testimony on the first of a planned two-day hearing, the independent = audit referee, former California State Supreme Court Justice David Eagleson= , court-appointed auditor John J. Costello and CPA Michael Miskei seemed to= side with Disney on a number of counts that the Slesinger heirs complained= about.

All three rejected claims that the independent audit was fatally flawed = by missing or incomplete records, or by auditor bias toward Disney as "thei= r client," or that the heirs were "frozen out" of discussions between Disne= y executives and the independent auditors.

With Miskei on the stand, Petrocelli argued that Slesinger's heirs hav= e tried to engage in "double dipping" by demanding a royalty fee both when = a Pooh product is licensed to a manufacturer and when those products are so= ld in retail shops, such as in Disney theme parks here and abroad and at th= e Walt Disney Stores.

Fields later said the contract calls for Slesinger to participate at bo= th stages. Petrocelli admitted that Disney "may or may not be" be the manu= facturer in some cases, but said that doesn't matter. Fields said Disney do= es own some toy manufacturers from whom it buys the toys it sells in its re= tail operations, and that his clients are due royalties on both revenue str= eams.

"[Slesinger] doesn't like the court's proposed method of extrapolating,"= Petrocelli said, and instead wants another method that "yeilds wild number= s, completely ridiculous numbers that are only designed to achieve a total = windfall. They have no basis in reality."

Meanwhile, potential evidence gleaned by Slesinger attorney Elizabeth Mo= riarty from some 400 bozes stored in a Disney warehouse and produced in dis= covery was ruled inadmissible by Hiroshige after the attorney admitted she = could not tell from the documents, including shipping invoices, whether or = not any transactions involving Pooh products had actually been consumnated.

Hiroshige left Fields room to re-argue the matter if he can provide a = foundation for the documents, such as testimony from someone familiar with = their normal use.

Katzenberg: $500 Million?

Much of the slow-moving morning session of Monday's hearing was taken up= by an hour-long conference in Hiroshige's chambers between Petrocelli, who= gained national prominence when he won a huge judgment against Simpson in = the civil case brought against the accused football great by the families o= f Nicole Brown and Ron Goldman.

Fields most recently starred in the highly-publicized corporate breakup= of former Disney president Jeffrey Katzenberg and Walt Disney chairman Mic= hael Eisner, with Katzenberg finally winning a sumthat Field said Monday wa= s more than $300 million, and maybe as much as $500 million.

"I can't q= uote the figure," he said. "It's not $50 or $100 million. It's big."

Th= e Pooh case, Fields said, "is in the same ballpark. Maybe more."

Disne= y has never made a settlement proposal, but didn't do so in the Katzenberg = case, either, Fields noted.

An accounting expert is scheduled to testify today for Slesinger on th= e independent audit and a proposed "extrapolation theory" that would apply = an error rate between 13.6 percent -- the rate found by auditors in the 198= 8 Disney payments -- and 0.8 percent, the rate found in the 1994 payments.

The two years were selected as representative of a period governed by = a renewed 1983 contract. The first contract was negotiated in 1961 between= Walt Disney and Stephen Slesinger's heir, Shirley Slesinger Lasswell, who = was at the hearing Wednesday. The elderly Tampa, Fla., woman was later mar= ried to "Snuffy Smith" creator Fred Lasswell, who died at their home in Mar= ch of this year.

At the end of yesterday's hearing, Mrs. Lasswell called = Disney's behavior "disappointing," and vowed to stay with the case. "This = is absolute piracy," she said.

Video Royalties Are Sought

Petrocelli drew a sharp distinction between the accounting reports in Mo= nday's hearing and other issues in the case, such as Disney's on-again, off= -again payments on Winnie The Pooh videos and computer software. Those are= contract issues that have to be decided by the judge or at trial, he indic= ated.

"Disney's position will be completely vindicated on every issue," Petr= ocelli predicted.

Fields said a letter from a senior vice-president of Disney, Vince Jeffe= rs, shows that the company knew it was obligated to pay royalties on videos= and computer software, which Disney stopped paying in the 1980sas they sta= rted to become a huge market segment, Fields said.

Sales of Pooh videos have been estimated at $880 million over the past= 10 years.

"The other thing that hurts them is that in the old days before video th= ey paid on film and Super 8 cassettes," Fields said.

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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