Who Owns Pooh?

As if it didn’t have enough problems with a soft ad market and a sinking stock price, the Walt Disney Co. has revealed to shareholders that it may owe several hundred million dollars because of a silly old bear. In 1961 Disney licensed certain rights to the character of Winnie-the-Pooh from literary agent Stephen Slesinger, who had acquired U.S. merchandising rights from A.A. Milne, author of the books featuring Pooh and Christopher Robin. That contract made no mention of videotapes, computer games or DVDs–because such uses either didn’t exist or weren’t widespread when the deal was made.

Now, though, Disney’s sales of Pooh products, including videos, DVDs and interactive storybooks, bring in more than $4 billion a year, making Pooh the most popular Disney character, ahead of even Mickey, according to lawyers for the heirs of Slesinger, now deceased. Disney denies that math, but the heirs are suing for back royalties of $500 million to $1 billion and unspecified punitive damages. They even want a share of profits from theme-park rides like Pooh’s Honey Hunt in Tokyo.

Disney claims that it owes no royalties to Slesinger because the new uses of Pooh are included in film rights, which it licenses directly from Milne’s estate. A judge and jury will decide who is right when the case comes to trial in Los Angeles next year.

Lawsuits over “digital rights” have swelled court dockets as artists and publishers disagree over who controls a new medium when an old contract is silent. Since the advent of film and then TV, each technological advance has caused a scramble to define ownership. But the issue has taken on heightened importance as new venues for copyrighted works increase the potential revenue from popular characters and stories. Characters can now be franchised from a book to a film and could eventually exist continuously on television, video, DVD and the Internet.

“As technology has blossomed, it has expanded the ways to exploit intellectual property and added greater value,” says Joseph Beard, a professor at St. John’s University School of Law. Yet as the new rights become more valuable, such old-media distributors of content as publishers and photo agencies are discovering a new willingness by courts to leave them out in the cold.

When Random House signed publishing contracts in the ’60s with such well-known authors as Kurt Vonnegut and William Styron, it included expansive language claiming all rights to publish the works in “book form.” To the company’s surprise, a federal appeals court recently affirmed a ruling that this language probably did not apply to electronic versions, or e-books. The lower court reasoned that because e-books are made up of changing digital signals sent over the Internet rather than of fixed texts on printed pages, they were not “books” under a traditional definition.

The decision leaves the e-book field at least temporarily open for an upstart publisher, Rosetta Books, which has licensed electronic-publishing rights to more than 100 books directly from authors. Although consumer demand for e-books is uncertain, Rosetta hopes to become the publisher of choice by persuading consumers to download books online for less than they would have to pay in a store. Protests Linda Steinman, director of litigation for Random House: “This is a directly competitive product. It makes sense that the e-book rights should stay with the original publisher.”

In Europe, such photo agencies as Corbis and Gamma assumed that their right to license work by their stable of photographers to print media extended to digital formats. After all, they were only trying to make more money for their artists. The photographers rebelled in part because they feared the ease with which their photos might be copied or altered if displayed on the Internet. French courts have sided with photographers, ruling that they retain all future distribution rights, including digital, to photographs taken under older contracts with the agencies. In the U.S., photographers successfully sued National Geographic over digital uses, with a federal appeals court ruling the magazine must pay extra to use licensed photos in CD compilations of past issues.

Such decisions, while dependent on the language in each contract, seem to mark a trend by courts to treat digital and electronic uses of existing works as entirely separate creations. “The Internet is really a new animal in terms of efficiency, speed and breadth. Courts do not easily embrace Internet uses in contracts written before its invention,” says Lloyd Weinreb, a professor at Harvard who teaches intellectual-property law.

This trend runs counter to earlier decisions in which courts were more inclined to extend licenses for one format, such as film, to cover similar new formats, such as television–in part to ensure wide distribution of works for public consumption. “Courts are moving away from a policy favoring the party that could provide more dissemination of a work for the public,” says Bruce Keller, an intellectual-property lawyer at New York’s Debevoise & Plimpton.

In New York Times v. Tasini, in which Keller represented the newspaper and other defendants (including Time Inc., publisher of TIME), the Supreme Court ruled that unless specified in contracts, newspaper and magazine publishers do not automatically own the right to resell freelance contributors’ stories to such digital databases as LexisNexis. The publishers have since removed the freelancers’ articles from the databases. Keller maintained that such rulings damage the public interest by withholding rights from the parties best positioned to publish works in the new medium.

From the authors’ perspective, though, the issue is not whether the work can be disseminated but whether they should be paid when companies find new uses for their works. The more companies try to deny creators profits from new distribution methods, the more courts may be inclined to read contracts narrowly to level the playing field.

This court-sanctioned reversion to the artists or their representatives of rights in new media can mean gigantic headaches for companies like Disney, which could be forced to renegotiate hundreds of contracts each time a work is released in a new format. Disney experienced a similar situation 10 years ago when video rentals of hit films first began to take off.

Performers who had provided voices for title characters in such Disney features as Cinderella and Sleeping Beauty sued Uncle Walt, claiming that Disney had not paid for the rights to include their performances in video adaptations of the films. Peggy Lee, who had provided songs and dialogue for the film Lady and the Tramp for $3,500 in 1952, won a $3.85 million judgment in 1991 and later settled for an undisclosed sum rather than endure a long appeal.

Disney settled lawsuits with the Sleeping Beauty and Cinderella actresses. But it won several cases against orchestras and music publishers who tried to block the use of such compositions as Igor Stravinsky’s Rite of Spring in videos of Fantasia without additional compensation. The different decisions hinged on specific contract language, but also mark a tendency of some courts to safeguard the rights of individual creators more zealously than those asserted by sophisticated entertainment companies.

Like other major studios and distributors, Disney is especially careful these days to try to secure a blanket license from its performers to use their work in current and future technologies. What seems like a blanket license today, though, may be Swiss cheese in 10 years, when an unanticipated new medium–self-generating holography? 3-D lasers?–becomes the rage. The cost of renegotiating so many licenses may cause companies to charge ahead with new uses before they have established exactly what rights they hold. “Sometimes when there is a market opportunity, companies think they have to act on it. The time it takes to untangle all the rights is prohibitive,” says David Green, senior counsel at Corbis.

Because technology cycles are quickening, distributors cannot count on having more than a few years to exploit their existing rights in a work. As a result, businesses must price their merchandise to make as much money as possible up front. “This is a huge problem and will continue to be a huge problem,” says Lanning Bryer, a lawyer at the New York City firm Ladas & Perry, which specializes in intellectual-property cases. “The game is to keep everyone else off the golden apple for as long as possible.” Or, as in the Pooh case, to keep them off the golden honeypot.