The Hobbit, the Weinstein Brothers and Contract Interpretation

I took a break from grading exams this weekend to see the second installment of "The Hobbit."  It was rather engaging and the special effects were amazing (although some of the scenes were, not surprisingly, rather gory and violent - which didn't seem to faze the little girl sitting behind me).  I previously blogged about the contract issues in the first Hobbit movie and while there were some in this one ("a favor for a favor," additional duties Bilbo is required to take on that, as my daughter pointed out , were not expressly written out in his contract, and a few other issues), the bigger contract dispute takes place off screen between the Weinstein brothers and Miramax, on one side, and Warner Bros and New Line Cinema on the other.

The Weinstein brothers and Miramax signed an agreement giving up the rights to the Hobbit and LOTR movies to WB in exchange for 5% of gross revenues for "the first motion picture" of each book but "not remakes." 

The problem?  The Hobbit book has been split up into three movies - the first one grossed more than a $1billion worldwide, so we're not talking about chump change here.  The Weinsteins and Miramax received $90 million dollars for the LOTR movies and $25 million for the first Hobbit movie. The Desolation of Smaug grossed over $73 million this past weekend. 

The issue then boils down to one of contract interpretation - what does "the first motion picture" of each book but not "remakes" mean? 

Based on the limited information I have, I think the Weinstein's got this one and here's why (although without reviewing the entire contract or being familiar with industry norms of interpretation - if there are any -- this is of course, just wild speculation).  First, let's start with the plain meaning of "first motion picture."  The second installment of "The Hobbit" is still the first motion picture made regarding the events in the book.  WB advertises this as the second in a trilogy - not the second movie made of the Hobbit.   "Trilogy" is a group of related works - not the same work. WB has turned the book into a trilogy - like the LOTR books (for which the Weinsteins got a cut from each movie). The colon here matters - the movie is not advertised as "The Hobbit" and "The Hobbit" it's "The Hobbit:  The Desolation of Smaug."  Supporting this interpretation is the language "not remakes" which clarifies what is meant by "first motion picture."  Remakes are not subject to the revenue share provisions but a new installment of a trilogy, IMHO, is.

Another issue has to do with good faith.  WB is quoted as saying that the Weinsteins basically just made "one of the great blunders in movie history."

I don't see it that way.  I think both parties have an obligation to carry out their obligations in good faith and WB seems to be trying to pull a fast one here.  The fact that they refer to this as a "great blunder" seems like they are trying to take advantage of the Weinsteins here, not that they seriously had a misunderstanding regarding the contract terms.  If this issue had come up at negotiation, the parties would likely have agreed the Weinstein's should get a cut. 

There is, of course, the pesky problem of whether the contract is subject to arbitration.  Hopefully not, because I would really like to see how this plays out in court.

[Nancy Kim]