The 100 Aker Wood may look like a dark, forbidding place these days for Michael D. Eisner. That's where Winnie the Pooh, Piglet, and Eeyore live, and the cartoon characters--which represent at least $1 billion a year in revenues for Eisner's Walt Disney Co. (DIS)--are in full revolt. A 12-year-old lawsuit, sealed in a Los Angeles court until January, has come to light, and a series of court rulings threaten the media giant with hundreds of millions in overdue license payments and possibly the loss of one of its most lucrative properties.
How large a hit Disney will take is still in dispute. Disney is appealing two rulings, including one alleging that company executives knowingly destroyed important papers related to its licensing deals. The Pooh affair may seem minor at a time when Eisner is under attack for Disney's chronically weak stock price and ABC's anemic ratings, but the Disney chairman hardly needs more jostling from a Silly Old Bear. What's more, the impact could be significant. After acknowledging to the Securities & Exchange Commission on Aug. 9 that "damages could total as much as several hundred million dollars" or the loss of the licensing agreement, Disney was hit with new shareholder lawsuits.
Disney wants to keep its grip on that bear and his honey jar. Pooh is Disney's single largest property, says Martin Brockstein, executive editor of The Licensing Letter. That adds up to about $100 million in operating earnings from royalties on Pooh T-shirts, backpacks, and other merchandise, figures Gerard Klauer Mattison & Co. analyst Jeffrey Logsdon. Last year, Disney paid $352 million to one pair of heirs of Winnie-the-Pooh author A.A. Milne. But the family of Stephen A. Slesinger, a New York literary agent who bought the U.S. rights in 1930, says Disney owes them $200 million on licenses for T-shirts and other merchandise and has cut them entirely out of the lucrative videocassette and DVD arena. Headed by Shirley Slesinger Lasswell, an 80-year-old widow who travels with a Winnie-the-Pooh bear everywhere, the family contends it is owed close to $1 billion, say its lawyers. Disney, which says it pays the Slesingers $12 million a year, insists the $1 billion figure is a publicity stunt. "The 1930 contract says they get royalties on merchandise alone, not all exploitation," says Disney attorney Daniel J. Petrocelli.
The Slesingers also charge that Disney lost documents related to merchandise sales and destroyed others that extended the accord to DVDs and videotapes. On June 18, Los Angeles Superior Court Judge Ernest M. Hiroshige rejected the audit by a forensic accountant he thought unduly favored Disney and found that Disney "misused the discovery process" by hiding the fact that it destroyed documents that might have expanded the licensing agreement to tapes and DVDs.
Absent those documents--which include the papers of the late Disney Consumer Products chief Vincent Jefferds--the case may hinge on the "mommy memo." That memo, written in 1983 by Slesinger daughter Patricia to her mother, Shirley, describes a meeting with Jefferds at the Beverly Hills Hotel at which Jefferds allegedly told Patricia "that videos and all these new things were covered and to shut up about it," according to court documents. Because Disney destroyed Jefferds' letters, Judge Hiroshige ruled that Disney is barred from "introducing evidence disputing" the family's contention that they were entitled to royalties on videocassettes. Disney is appealing the ruling.
Settlement seems unlikely among the parties. One obstacle: the still-simmering animosity toward Slesinger lawyer Bertram Fields, who won a $250 million settlement for former Disney studio chief Jeffrey Katzenberg in a hypercharged 1999 case. This time, the character may be soft and fuzzy, but the payout could be bigger. For Eisner, Pooh is becoming one Very Big Bother.
Corrections and Clarifications
``Why is Christopher Robin sobbing?'' (Entertainment, Sept. 16) should have noted that the litigation between Walt Disney Co. and the Slesinger family, which controls some rights to the Winnie-the-Pooh characters, is scheduled to proceed to trial in March, 2003.
By Ronald Grover in Los Angeles