In 1976 Zaentz acquired certain rights in J. R. R. Tolkien's books of The Hobbit and The Lord of the Rings. In 1978 he produced an animated version of The Lord of the Rings, written chiefly by Peter S. Beagle and directed by animator Ralph Bakshi. Through Middle-earth Enterprises, Saul Zaentz owns the worldwide film, stage, and merchandise rights to The Lord of the Rings and The Hobbit.
Zaentz was peripherally involved in the controversy about who would make a live-action film version of The Hobbit, because he owns the film rights to that novel. Peter Jackson, who directed the successful The Lord of the Rings film trilogy, was the first person scheduled to direct The Hobbit.
However, Jackson's production company Wingnut Films questioned New Line Cinema's accounting methods, bringing in an outside auditor as allowed by the contract, and eventually sued New Line. New Line executive Robert Shaye took great offense, declared that they would never work with Jackson again, and began looking for another director.
Jackson said that he couldn't work on the film until the lawsuit was settled, and that he was apparently off the project indefinitely. MGM, which owns the distribution rights, was more optimistic that a deal could be worked out.
Shaye explained his company's position, saying that New Line's contract with Zaentz was going to expire soon, which forced them to find a new director. Of course, if the litigation were resolved, by a court or by a settlement, the original plan could proceed, but then New Line might need to reorganize to allow someone other than Shaye to deal with Jackson.
The situation was made more complex by Zaentz's ongoing dispute with New Line Cinema over profits from the Lord of the Rings films. The dispute began shortly after the release of the films. In December 2007 Variety reported that Zaentz was also suing New Line Cinema, alleging that the studio has refused to make records available so that he can confirm his profit-participation statements are accurate.
In 2010 it became clear that Peter Jackson would direct the movie after all.
In 2011, Zaentz' company began several legal actions against small businesses in the UK to enforce their "Hobbit" trade mark, including the Hungry Hobbit cafe and a pub in Southampton, England, which had traded as The Hobbit for twenty years. This raised the ire of many British correspondents such as Stephen Fry, who described it as "pointless, self-defeating bullying."
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