Disney Warns of Pooh Lawsuit Risk

Walt Disney Co. revealed in a government filing last week that a court fight over the merchandising rights to the Winnie the Pooh characters could, in the worst-case scenario, cost the company several hundred million dollars.

The disclosure was made in a quarterly filing May 15 with the Securities and Exchange Commission. It marks the first time Disney has notified shareholders of the potential effect of the 11-year-old legal battle with Stephen Slesinger Inc. That family-owned firm acquired the merchandising rights to the Hundred Acre Wood characters from author A.A. Milne in 1930.

“If each of the plaintiff’s claims were to be confirmed in a final judgment, damages could total as much as several hundred million dollars and adversely impact the value to the company of any future exploitation of the licensed rights” for Pooh merchandise, according to the filing.

Slesinger’s heirs claim Burbank-based Disney has cheated them out of $200 million in royalties since 1983 from Pooh-related videos, DVDs, computer software and popular Pooh attractions at theme parks. Disney contends that it has fulfilled its royalty obligations under a 1983 contract.

The lawsuit is scheduled to go to trial in February.

“As this case has gotten closer to trial, it has gotten more and more attention, and we thought it was appropriate for us to let our shareholders know,” Disney spokeswoman Michelle Bergman said.

Bonnie Eskenazi, one of the lawyers representing Slesinger, said the filing was significant because “Disney has adamantly denied that there was even a possibility of terminating the future rights to the use of Pooh.”

But Disney lead attorney Daniel Petrocelli said the filing does not change Disney’s view that “whatever the outcome of the lawsuit, the Slesinger company is not in a position to reclaim and exploit any Winnie the Pooh rights on its own.... We think the Slesinger company is grossly overreaching.”

Pooh and his friends are among the most lucrative of Disney characters and a key contributor to the company’s struggling consumer products unit.

“Clearly, Pooh has been a significant franchise, and anything that would jeopardize that going forward would have a long-term impact on their earnings,” said Tom Wolzien, an analyst with Sanford C. Bernstein & Co.

Disney shares fell 39 cents to $23.45 on the New York Stock Exchange.