Roy Disney Foresaw Pooh Rights Dispute

Top Walt Disney Co. executives knew by the mid-1960s that the company would encounter problems reaping all of the profits from its broad strategy for commercializing the Winnie the Pooh characters, according to newly unsealed court documents.

In a confidential January 1967 company memo, Walt Disney’s brother Roy O. Disney bemoaned the tangled ownership interests in the Winnie the Pooh characters left by creator and author A.A. Milne, who died in 1956.

The Disney company acquired rights to Pooh in 1961. Six years later, Roy Disney--then president of Walt Disney Productions and the financial whiz of the two Disney brothers--discovered that Milne had divided the rights to the Pooh characters to a greater extent than Disney executives had realized.

The memo is among more than 40 volumes of documents chronicling a 11-year legal battle between Disney and Stephen Slesinger Inc., a family-owned firm that acquired merchandising rights to the Hundred Acre Wood characters from Milne in 1930. Slesinger’s heirs sued Disney, claiming the Burbank-based entertainment giant has cheated them out of at least $200 million in royalties since 1983 from Pooh-related videos, DVDs, computer software and popular Pooh attractions at theme parks.

Documents in the case were unsealed Friday after Los Angeles County Superior Court Judge Ernest M. Hiroshige in December granted a motion by the Los Angeles Times to open the files.

The newly released records show that ranking Disney executives were unaware that Slesinger had such extensive rights when Disney acquired the Pooh properties. Roy Disney’s 1967 memo outlined the jumble of rights and a scenario that some say proved prophetic.

“A.A. Milne has certainly and completely balled up his rights to Winnie the Pooh in America,” Disney wrote in 1967. “If we were to do anything with Winnie the Pooh, Slesinger is in a beautiful spot to either hold us up for an outrageous price or sit back and reap the rewards of our work and investment.”

Milne, who lived in England, kept the literary rights to Pooh, Tigger, Kanga and Roo and the other whimsical characters that populated his stories. He sold the merchandising rights to Slesinger, a New York literary agent, in 1930 and agreed to share profit from that deal with the original book illustrator, Ernest H. Shepard. In 1932, Milne agreed to expand Slesinger’s rights to cover radio and, eventually, television broadcasts.

“If we were to buy Milne’s rights, we would still have to answer to Shepard, and Slesinger would still have the rights to exploit its characters and stories on radio and television,” Disney wrote. “All of the rights granted to Slesinger are sole and exclusive and nontransferable.”

The most recent contract, signed in 1983 by representatives of Disney, the Milne Trust and Slesinger’s heirs in Florida, streamlined payments of Pooh royalties and removed geographic boundaries. The Slesingers are entitled to 1.33 cents of every dollar of Pooh merchandise sold, based on wholesale prices.

But the contract is silent on payments for videos, computer software or uses in other media--adding more confusion and contention to the issue of who owns which rights to the characters that Milne created in the 1920s.

Disney attorneys now maintain that the Slesinger heirs are due royalties on a limited line of Pooh products, including apparel and stuffed animals. The 1983 contract, they say, delineates the rights, and Disney has resisted attempts by Slesinger’s daughter and widow to amend the contract to include other products or uses.

“The contract does not cover videos, DVDs or when Winnie the Pooh dances down Main Street at Disneyland,” said Disney’s lead attorney, Daniel Petrocelli. “Disney has worked extremely hard and made [the Pooh] property immensely profitable, and these people just sit back and collect checks.”

Pooh and his furry friends are purported to be Disney’s most lucrative characters, by some accounts raking in more than $4 billion a year for Disney and its licensees in the mid- to late 1990s.

The fraud and breach-of-contract lawsuit filed by Slesinger’s widow and daughter in 1991 is expected to go to trial this year. The legal dispute has sparked worldwide interest because testimony is expected to reveal how much money the “tubby little cubby” has made for Disney.

Slesinger family attorney Bert Fields said Roy Disney’s 1967 memo puts Disney lawyers “in a tough spot” because Disney executives acknowledged that the company would have to pay the Slesingers for “anything” Pooh-related.

Petrocelli, however, said the memo bolsters Disney’s case against the Slesingers.

“This is a perfect piece of evidence that confirms that they only had a little slice of the pie: merchandising and broadcasts on radio and television,” Petrocelli said.

Documents released Friday show that Disney’s relationship with the Slesingers and the Milne Trust soured a few years after the 1983 contract was signed.

Disney lawyers argued with representatives of Milne for more than a decade over whether the company owed royalties on Pooh software. Finally, in 1996, Disney reversed its position and paid the Milne Trust $750,000 to cover royalties on computer software, court records show.

Last year, Disney agreed to buy out the Milne Trust for $350 million. The company agreed to pay the lump sum to resolve lingering questions over payments and uses in new technologies.

But Disney’s dispute with the Slesinger family continues. The Slesingers maintain that they should be paid royalties on videos, DVDs and computer software and that a ranking Disney executive assured them that videos and computer uses were included in the 1983 agreement.

In fact, court papers show that Disney paid the Slesingers at least $29,000 in royalties on videos and software for a few years after the contract went into effect. But those payments stopped about 1988.

Disney attorneys maintain the payments were a mistake, not an admission that the company owes the Slesinger family additional royalties.

“Those payments prove nothing more than that an accountant in Disney’s Consumer Products division occasionally made minor errors in Stephen Slesinger Inc.’s favor,” Disney lawyers wrote in the court papers. “SSI wants the court to ignore the fact that it is trying to usurp rights it never got from the trust.”

Slesinger attorney Fields disagrees.

“Disney paid royalties on video until video got really big, and then Disney said, ‘Oh, it was a mistake,’” Fields said. “Disney paid royalties on computer software until they saw the potential for computer software. Disney has some real problems here.”