by Joe Shea
American Reporter Correspondent
January 3, 2001
DISNEY REBUFFED IN APPEAL OF TOUGH SANCTIONS
LOS ANGELES -- The Walt Disney Co. suffered another blow to its hopes of winning a long-running court case over commercial rights to Winnie The Pooh when California's Second District Court of Appeal denied the studio's writ seeking to toss out severe sanctions levied by a Los Angeles judge against the company for destroying 40 boxes of evidence after he ordered it to keep them intact.
The sanctions, which are still secret, are said to include one that permits the owners of the rights -- which earned about $4.5 billion for Disney in 2000 -- to take them elsewhere, and another that prohibits Disney from arguing it was not required to pay royalties on a wide variety of uses generated by the familiar Pooh characters, including Pooh, Piglet, Eeyor and Tigger, created by British writer A.A. Milne in the late 1920's. Exclusive commercial rights to Pooh were licensed to literary agent Stephen A. Slesinger in 1929.
The Slesinger family, after producing records, dolls, cartoons and a popular clothing line based on Pooh, licensed the rights to studio founder Walt Disney in 1961. The Milne family retained a 50 percent interest in the rights, which they later sold to Disney. After the contract was renegotiated in the early 1980's, the heirs of Slesinger learned from Disney executives and others that the company had not been paying royalties on some items. The case went into Los Angeles Superior Court in 1991 when the two sides could not agree on a settlement.
Through documents obtained from Disney, the Slesinger family later learned that Disney's accounting for the products it sold under license were often undifferentiated from sales generated by its own characters, and charged that the studio had failed to pay royalties on computer software products, videos and other uses.
Disney has claimed it did not owe royalties on those products, but the issues sanctions levied in August by Superior Court Judge Ernest Hiroshige prevent Disney from arguing that viewpoint, sources familiar with the sanctions say. Under those circumstances, experts say, other studios might gain the right to some uses of Pooh. Disney bought the Milne heirs' rights for $330 million in 2001.
Judge Hiroshige unsealed the entire case file at a hearing on December 10, but stayed the opening of the files to the public at least until Jan. 11, when he is expected to hear Disney attorneys led by Daniel Petrocelli of O'Melveny & Myers argue to keep at least some of the records secret, ostensibly because they contain trade secrets. A second hearing on Feb. 10 will settle those issues, Judge Hiroshige indicated last month. Famed Hollywood "superlawyer" Bert Fields represents the Slesingers.
Spokesmen for the appellate court said the decision came down Dec. 27 and that judges had also denied Disney's request for monetary sanctions related to lawyers fees and a request that the court's decision and Disney's lengthy petition be sealed.
The decision apparently went unnoticed by lawyers in the case over the holidays, who learned of it today. Lawyers for the plaintiff, including Elizabeth Moriarty of Greenberg, Glusker, Claman, did not return phone calls seeking information.