Walt Disney and Jim Henson -- Behind the controversy of a supposedly brilliant deal

On a summer night in 1989, during a meeting at his New York City town-house office, Jim Henson shook hands with Walt Disney Co. chairman/CEO Michael Eisner on a deal that seemed destined to make pop-culture history. Henson would move his beloved Muppets into Disney’s Mouse House, uniting two great forces in the children’s entertainment world. So thrilled was Henson with the proposed marriage that he gave the handful of people who helped make the deal gold Mont Blanc fountain pens engraved with images of Kermit and Mickey Mouse. In the two years since, a period marked by Henson’s sudden death at 53 from a bacterial infection last year, more ink has been spilled, but it has landed on depositions and complaints. Charging fraud as well as infringement of trademarks and copyrights, Henson’s family filed suit two weeks ago and is now locked in a nasty legal battle with Disney. Like many others before them, the Henson survivors are discovering that the Mouse House can be a tough place to live.

In Hollywood, where lawyers run many of the major studios and where lawsuits fly freely, Disney has a reputation for being the quickest to go to court, the company least likely to resolve disputes with a handshake. Filing 500 to 800 lawsuits each year since Eisner’s arrival, the Disnoids — as the in-house legal staff is known throughout the industry — send out a clear message: As rabbits love to propagate, the Mouse loves to litigate.

Walt Disney was always vigilant about protecting his franchise and the use of the cartoon characters he created. But since son-of-a-lawyer Eisner, 49, became chairman in 1984, the company has taken hardball into extra innings. No target is too big. When the opening musical number of the 1989 Oscar show parodied Snow White, Disney filed suit against the Academy of Motion Picture Arts and Sciences the next day. And no target is too small. In 1988, Disney sent threatening letters to three day-care centers in Hallandale, Fla., demanding that they remove the Disney cartoons decorating their outside walls. ”Eisner is hardheaded,” says John Taylor, author of 1987’s Storming the Magic Kingdom: Wall Street, the Raiders and the Battle for Disney. ”He doesn’t mind being mean. He may take a perverse pleasure in dominating others, but that’s not to say it’s reprehensible. It works.”

‘Deed it does. At a time when many companies are slashing payrolls to stem the flow of red ink, Disney consistently posts double-digit growth. It has been the top-grossing movie studio for two of the last three years. It overwhelmingly dominates the theme-park business worldwide. And with Disney retail stores opening every week, it is a commanding force in the multibillion-dollar character merchandising business.

There’s only one downside to Disney’s strategy. People are starting to do battle with the Mouse in court, filing high-profile, well-publicized lawsuits. The Henson case is one example (although the family is still going ahead with its contractual agreement to produce ABC’s Dinosaurs series with Disney). Also fighting back is singer Peggy Lee, who recently was awarded $2.3 million for royalties on sales of Disney’s Lady and the Tramp videocassette. Disney has said it will appeal the judgment. The woman who gave voice to Disney’s Sleeping Beauty in 1959, Mary Costa, has a similar suit pending against the company.

And it’s not just the creative community that’s standing up to Disney. The federal government has fined the company for illegally dumping (paint thinner and other cleaning solvents used at Disneyland) in Utah and Wyoming as well as for killing protected black vultures at Walt Disney World in Florida. Disney has since hired an executive to oversee environmental policy.

Casting the Mouse in a bad light, all these cases put the company in a precarious and ironic position. After fighting its way to the top of Hollywood, Disney stands to lose the thing it has fought hardest to protect: its image.