Disney Lawyers Claimed Pooh Was Public Domain

by Joe Shea

The case has pitted the American heirs to trademark and derivative rights to the best-selling bear, which they licensed to Disney in separate agreements in 1961 and 1983, against the British heirs to the copyrights on four books by the author of Winnie the Pooh.

The studio's complaint for declaratory judgment is its latest move in the long-running lawsuit between the heirs of American branding pioneer Stephen Slesinger and the Burbank, Calif.-based $25-billion Disney Enterprises.

"There are a lot of aspects of it that at first blush seem dubious," said copyright litigator Roger Zissu of the New York firm of Fross, Zelnick, Lehrman & Zissu, who in 35 years of copyright practice was upheld in the U.S. Supreme Court case concerning President Gerald Ford's memoirs and favorably resolved a lengthy and widely-publicized termination suit brought by the heirs of Tarzan author Edgar Rice Burroughs against MGM.

Disney said it has persuaded two British women, the granddaughters of author A.A. Milne and illustrator Ernest Shepard, to agree to sign the rights held by the Slesingers over to Disney in 2004 -- if the termination suit is successful. Those rights have generated some $66 million in revenue for the Slesingers, most of it in the past six years, and some of them are at the core of an 11-year lawsuit over Disney's alleged failure to pay royalties owed on merchandise, computer software, videocassettes and DVDs. A trial in Los Angeles County Superior Court has been set for May 2003.

One key element is Disney's statement in its complaint, filed here in U.S. District Court, that after serving termination notices "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." That is flatly contrary to the law, 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."

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.

Meanwhile, an American heir of Stephen Slesinger had harsh words for the studio's efforts to break their 1930 and 1932 agreements with the Milnes covering trademarks, derivative works and other limited copyright rights.

"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 a rare exclusive interview with The American Reporter.

Disney announced on Nov. 4, shortly before its third quarter earnings report was released, that it had persuaded the granddaughters of Pooh author A.A. Milne and illustrator Ernest Shepard to "recapture" rights from the Slesingers granted by Milne and Shepard in 1930 and 1932, and that 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 this afternoon.

The Slesingers' noted Hollywood lawyer, Bert Fields, in a comment to the Times, called the 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."

"These are very complicated copyright issues that span from the 1909 Copyright Act to now. 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 1952.

"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.

Failure to use the true owner's name placed the properties in the public domain, Disney lawyers argued in the letter, as it also had in over the course of almost 45 years of internal correspondence among its lawyers that became part of the record in the case last January.

If so, that would mean the copyrights Disney is trying to recapture did not exist in 1930 and 1932, at the time the Milnes granted the Slesingers the right to create non-copyright, secondary uses of Pooh, such as a line of clothing, recordings and radio shows. Those rights are separately granted by the creator, as Milne is called in the contracts, who may or may not have owned the copyright at the time but as "creator" could grant other commercial rights to trademarks, a stronger form of protection that is outside the scope of the Copyright Act.

But Disney has also argued the 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 attorneys. "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."

Milne never says until 1958 that he 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.

It is also possible that the copyright was assigned to Dutton and then reassigned to Milne at a later time, the sources noted. One Disney attorney warned the company that it should never try to assert its claim in court, and documents related to the Disney analysis were very closely held. A reading of portions of them indicates that the secrecy apparently was ordered to avoid the use of the rights by others perhaps convinced of the public domain argument Disney advanced.

A court would have had to rule accordingly before the public would be free to use the 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, the sources say. And that would have been technically true, they say, until a court ruled on the issue. They added that Disney may have argued the same facts the other way, to prove the Pooh books were not in the public domain, in a 1956 lawsuit.

The facts that put the title in the public domain, as Disney's lawyers argued them in 1981, have 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 argument for the first time to Shirley Slesinger Lasswell and Patricia Slesinger as a bargaining tactic.

Only 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, did the studio abruptly drop 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. Pooh properties earn $6 billion a year at retail, Disney consumer merchandining chief Lou Meissinger said recently, and contribute several billion dollars to Disney's bottom line each year. That they may not have been protected by copyrights would scare even the most fearless intellectual property rights litigator.

In any event, the studio has since regained copyrights, the sources said. It paid the equivalent of $320 million in British pounds to the Milne heirs for worldwide rights in 2001, except for Clare Milne's "indeopendent copyright," leaving the Slesingers as holders of U.S. and Canadian commercialization rights.

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 its stores and 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. Those are also the rights that are worth billions of dollars a year to their owner.

"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 said.

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 copyrights made by Milne, who either sold or licensed his copyright to E.P. Dutton in 1924, was in a 1961 contract with Disney in which Milne said he had obtained a renewal copyright on his four books in 1958.

Disney may have inadvertently opened a nasty can of worms, the expert suggests. 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.

A reading of the contracts, which were made public in February of this year, reveals no mention or assignment of copyrights by Milne to Slesinger or Slesinger to Disney. 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, the sources say, if the rights were recaptured it would merely put back in force the 1961 contract signed between Walt Disney and Shirley Slesinger Lasswell, 79, the widow of Stephen Slesinger. That contract calls for the heirs to receive 4 percent of the gross proceeds of Pooh merchandise sold 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 of Milne and Shepard hope to recapture seem to be those that Disney has argued it already has, such as videocassettes and DVDs. It is unclear why Disney would argue in one case that it has those rights and argue in another that it is seeking them as rights Clare Milne and Minette Hunt would recapture from the Slesingers. A family spokesman says that they own those rights and included them in a 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 by Shapira seeks recapture of four copyrights and provides their registration numbers, but none of those were ever licensed to the Slesinger firm, the family says. None matches the copyright renewal number Milne provided to Disney in a 1961 contract. 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.

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 -- is likely to be thrown out of court 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," Zissu commented, "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.