by Joe Shea
American Reporter Correspondent
January 19, 2002
DISNEY PAID $750,000 TO POOH OWNERS IN EARLIER DISPUTE
HOLLYWOOD, Jan. 19, 2002 -- The Walt Disney Co. paid at least $750,000 in 1983 to the widow and her daughter who own the commercial rights to Winnie the Pooh after lawyers accused the company of cheating them on royalty payments and threatened the studio with a lawsuit, newly-opened documents in a 1991 lawsuit revealed Friday.
The suit is only now approaching trial.
In the 1990's, the studio was also forced to pay another $600,000 for past-due royalties. Under the 1983 agreement, the estate of British author A.A. Milne, the creator of Winnie The Pooh, was also paid $350,000.
"In 1980, Slesinger began to notice uses of Pooh characters that did not appear to be included in the royalty statements. After that, Disney claimed to do a self-investigation and in 1983 Disney claimed to owe [and paid] Slesinger $750,000 as a result of the failure to properly report pay royalties for uses of Pooh. Disney also warranted and represented that they had made full disclosures and they promised to report properly in the future on all commercial uses worldwide," an attorney familiar with the case told The American Reporter Tuesday. "This case is about Disney's false disclosures and false promises they made in 1983. It has nothing to do with who owns what rights," he said.
[Editor's Note: The American Reporter mistakenly reported on Tuesday, Jan. 22, that there had been no $750,000 payment to the Milne Estate, and that the Los Angeles Times had reported such a payment in error. In fact, that payment was made in 1996 to purchase the estate's rights to videocassette royalties. We regret the error.]
The 1983 payment and later payments were kept secret until now, and was not disclosed to Disney shareholders, who have also not been told of the studio's destruction of thousands of pages of documents and its potential liability for hundreds of millions of dollars in the lawsuit, which was filed in 1991 and is still awaiting trial.
The $750,000 - a sum that was later increased, according to the heirs - shows that Disney's behavior as alleged in the current case seeking hundreds of millions in back royalties "is a second offense" in a troubled relationship the heirs have repeatedly threatened to end.
The payment to Stephen Slesinger Inc. was paid in installments.
That was probably the most startling revelation of a treasure trove of documents opened up by Los Angeles Superior Court Judge Ernest M. Hiroshige after the Los Angeles Times, joined by the American Reporter and other publications, sued to have the case unsealed. The documents also show that Disney paid royalties to the heirs on at least two computer software titles for years and then claimed it had done so in error and did not owe royalties for that category of merchandise.
The change of heart apparently came as revenues from computer-related products soared with the public's discovery of the Internet.
Thousands of documents that were released Friday - mostly in dribs and drabs, as harried court clerks tried unsuccessfully to find boxes containing some of the 45-volume record - trace a long and dauntingly complex relationship back to 1929, when New York literary agent Stephen Slesinger sailed to England to purchase most U.S. and Canadian rights to Pooh from British children's author A.A. Milne, who had created the beloved bear for his son, Christopher Robin Milne.
Their contract in 1930 was amended in 1932.
In the 1932 letter agreement, Milne and Slesinger expanded the original grant of rights to include live television, radio and puppet shows, as well as phonograph records and devices that would be "analagous" to television in the future.
The meaning of the 1932 agreement is still being disputed by Disney in 2002, which acquired other rights from the Milne estate and his late wife Dorothy, and all the rights not held by the Slesingers in 2001 for $340 million.
The relationship between the Slesingers and Milne and his estate, as described in the documents, was a friendly and cooperative one. Milne's mind "was greatly relieved," he wrote, when Slesinger agreed to allow him to develop the property's film rights while still seeking new ways to boost Pooh's sales.
Slesinger was entitled to revenue for movies using the characters in dramatizations not based on the stories in the original four books, to which Milne retained the rights.
Slesinger developed a best-selling set of phonograph records featuring the characters in the '30s and '40s, oversaw the making of a popular Pooh cartoon, and in the 1950's his widow placed a line of Pooh children's clothing, toys and novelties at major department stores across the country, including Saks Fifth Avenue in New York City.
On getting the license in 1961, Disney almost immediately relicensed the characters to Sears & Roebuck, the 1960's retail giant that dominated the U.S. dry goods market. But problems began arising as early as 1966 when Slesinger's widow, Shirley Slesinger Lasswell, began to find Pooh items on sale at Sears and elsewhere that were not recorded in her royalty reports.
As the number of such items grew with the character's popularity, by the early 1980's her lawyers threatened Disney with a "cease and desist" order terminating the contract unless the disputed payments could be amicably resolved.
The $750,000 "catch up" payment indicates that Disney eventually chose to resolve the dispute, but a long list of Pooh items sold at Disneyland and elsewhere continued to grow. Many of those were listed and illustrated, along with a private detective's notes, in the volumes examined yesterday covering activity in the case from 1998 to the present.
The Slesingers, backed up by multiple legal opinions and other documents that were part of the legal discovery process and remain under seal, say that Vince Jefferds, Disney's senior vice-president for merchandise licensing, and Disney attorney Peter Nolan assured them a revised agreement that incorporated the 1930 contract with Milne, the 1932 letter, and the 1961 agreement would cover "private" video rentals not made to public institutions such as schools, and also computer software.
An undated page of lawyer's notes say "Jefferds confirmed" that private rentals of video, then a business in its infancy, were not "public" and thus would be subject to royalty payments. The letters still under seal, which Petrocelli said he will investigate for their authenticity, support the same claim, he says.
But whether those documents are sufficient to prove the heirs' claim or not may be immaterial, since in an August 2001 ruling on sanctions sought against Disney by the Slesingers for destroying evidence in the case, Judge Hiroshige ordered that Disney will not be able to claim at trial that Jefferds had not promised to pay video royalties.
Disney can claim that Jefferds did not have the authority to make such promises, Judge Hiroshige said, but the late executive's signature is on a number of contracts for merchandise made public yesterday.
The studio appeal the sanctions order to the California Supreme Court on Jan. 10. Earlier, in a Nov. 7 petition for a writ of mandate that would terminate the sanctions, the studio told the California Court of Appeal that the sanctions were "potentially crippling" and that Hiroshige had given the Slesinger "virtually everything they asked for." Judge Hiroshige also ordered similar sanctions against Disney on defenses to Slesinger's claims for royalties from computer software, wholesale and retail sales of Pooh dolls and merchandise, and on "promotional" uses of Pooh.
Reporters from the Times, the Hollywood Reporter and The American Reporter spent virtually the entire day examining the documents made available yesterday at the Superior Court courthouse in downtown Los Angeles.
Clerks said the entire case will soon be moved to the nearby courthouse archives because there is not sufficient room for them at the main courthouse.
Joe Shea first worked as a courthouse reporter for the DowJones-Ottaway chain's Times Herald-Record in Goshen, N.Y., in 1969. He is Editor-in-Chief of the American Reporter and on its behalf won a landmark victory for the First Amendment in the U.S. Supreme Court in 1997.