Sept. 25 (Bloomberg) -- Walt Disney Co., the second-largest U.S. media company, won an appeals court ruling in its 16-year battle over hundreds of millions of dollars in royalties for Winnie the Pooh merchandise.

A California appeals court in Los Angeles affirmed a 2004 trial judge's decision to throw out a lawsuit by Stephen Slesinger Inc., owner of the merchandising rights to Pooh, featured in a series of popular children's books. The trial judge found that Slesinger had illegally obtained evidence. The appeals court decision was filed today.

In a 1991 lawsuit, closely held Slesinger said Disney hadn't accurately accounted for royalties it owed for sales of Pooh merchandise. Stephen Slesinger acquired U.S. and Canadian rights to the characters in 1930 from author A.A. Milne, including Pooh, named for a toy bear owned by Milne's son. After Slesinger's death, his widow licensed the rights to Disney. Slesinger's company sought $700 million in unpaid royalties.

Disney ``is obviously extremely pleased and gratified that there's now a definite and final decision putting this case to rest once and for all,'' its lawyer, Daniel Petrocelli, said in a phone interview.

Slesinger will appeal the ruling to the California Supreme Court, spokesman Lonnie Soury said. The company will also pursue its counterclaims in a federal court case with Disney in which it seeks $2 billion in damages as well as a ruling terminating Disney's U.S. and Canadian television and merchandising rights to Winnie the Pooh, Soury said.

Granddaughters' Suit

Los Angeles Superior Court Judge Charles McCoy in 2004 dismissed the state suit Slesinger filed, after concluding that the company ``tampered with the administration of justice.'' McCoy found that a private investigator hired by Slesinger stole 6,400 pages of Disney documents, including some from the company's trash cans.

``When a plaintiff's deliberate and egregious misconduct makes any sanction other than dismissal inadequate to ensure a fair trial, the trial court has inherent power to impose a terminating sanction,'' the three-judge appellate panel said today in its unanimous opinion.

Burbank, California-based Disney has unsuccessfully tried to terminate Slesinger's rights to the Pooh characters by backing a lawsuit filed by the granddaughters of Milne and illustrator Ernest Shepard in 2002. The U.S. Supreme Court last year turned away an appeal by Clare Milne that could have ended Disney's obligation to pay Slesinger royalties.

Slesinger filed counterclaims in the federal lawsuit, seeking more than $2 billion in damages for trademark and copyright infringement and for underpaid royalties.

Time Warner Inc. is the largest U.S. media company. Disney shares fell 25 cents to $34.07 in New York Stock Exchange composite trading.

The case is Stephen Slesinger Inc. v. Walt Disney Co., B178340, California Court of Appeal, Second Division (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

Last Updated: September 25, 2007 20:56 EDT