Eighteen months ago, the Tolkien Estate filed a lawsuit against New Line, the company that made the Lord of the Rings movie trilogy, for non-payment of agreed royalties. According to the Tolkien Estate, the agreement signed between J.R.R. Tolkien and United Artists back in 1968 ensured that Tolkien or his heirs would receive 7% of the gross of any film or films based on his books The Hobbit and The Lord of the Rings. Producer Saul Zaentz picked up the rights (with the same conditions attached) to The Lord of the Rings (but crucially not The Hobbit) several years later and made the animated Lord of the Rings movie with Ralph Bakshi in 1978. He later licensed the rights to New Line, who produced Peter Jackson's live-action trilogy in 2001-03, which between ticket receipts and DVD and merchandise sales has grossed more than $6 billion.
After much wrangling, MGM (owners of United Artists and hence The Hobbit movie rights) and New Line have now teamed up to make The Hobbit as two movies, with Jackson on board as producer and Guillermo del Toro taking over as director. The films are currently in pre-production, with Andy Serkis, Hugo Weaving and Ian McKellen expected to return as Gollum, Elrond and Gandalf respectively and many of the trilogy crew also reuniting to work on the new movies, including Tolkien artists John Howe and Alan Lee. The movies are planned for release in December 2011 and 2012.
However, the Tolkien Estate and HarperCollins, the publishers of Tolkien's books, both claim that they have not been paid the contractually required 7% of the movie gross on the trilogy, an amount which may exceed $200 million dollars. New Line had previously been sued by both Saul Zaentz and Peter Jackson himself over irregular accounting on the trilogy, and in both cases had to settle out of court. This time around the sums of money involved are staggeringly larger - it's $50 million dollars more than the total production budget of the first Hobbit movie - and there are also bigger players involved. HarperCollins is owned by Rupert Murdoch's formidable News Corporation, who are backing their publishers to the hilt.
The rights situation seems confused, but Christopher Tolkien's disdain for the movie adaptations of his father's work is very well-known. Some papers have concluded he is trying to get production of The Hobbit stopped, although how likely that is to happen is unclear. Whilst sold as one package, the rights to the two books were separated in the early 1970s, with Lord of the Rings' rights going to Saul Zaentz and The Hobbit's being retained by United Artists. As a result, New Line are arguing that the two projects are separate and any issues between them and the Tolkien Estate over Lord of the Rings have no bearing on the situation with The Hobbit. The Tolkien Estate seems to feel otherwise. If the judge agrees and returns The Hobbit's rights to the Estate (and possibly Lord of the Rings' as well, preventing any future remakes of the films without the Estate's permission), then the films will indeed have to be abandoned.
However, the general feeling is that outcome is extremely unlikely, due to the separation of the two projects. Fanbase reaction also seems to be mixed. A lot of fans are very keen to see The Hobbit and are resentful of any attempt to stop the films being made, whilst others agree that the Tolkien Estate should be paid any outstanding money that is owed to it, in accordance with the original agreement.
The case will be heard in a Los Angeles court in October. Production of The Hobbit is expected to begin in December or January and continue for over a year.