The question Gygax was asked was
What were the circumstances on the hobbit race being removed
from the original game? Was a letter from Tolkien properties
sent to TSR threatening legal action? or was it a more friendly
phone call to remove the buggers from the game?
to which Gygax replies
TSR was served with papers threatening damages
to the tune of half a mil by the Saul Zantes (sp?) [sic]
division of Elan Merchandising on behalf of the tolkien
[sic] Estate. The main objection was to the boardgame
we were publishing, The Battle of Five Armies. The
author of that game had given us a letter from his attorney
claiming that the work was grandfathered because
it was published after the copyrights for JRRT's works
had lapsed and before any renewals were made.
The action also demanded we remove balrog, dragon,
dwarf, elf, ent, goblin, hobbit, orc, and warg from
the D&D game. Although only balrog and warg
were unique names we agreed to hobbit as well,
kept the rest, of course. The boardgame was dumped,
and thus the suit was settled out of court at that.
--CHEERS GARY p.108
While clearly an off-the-cuff response made years after the event, this account clearly grasps the distinction between Tolkien Enterprises (Saul Zaentz's movie merchandising company, later the licensers of MERP) and the Tolkien Estate (Tolkien's family, who had control over the books themselves, rather than all the paraphernalia). It correctly portrays Tolkien Enterprises as the more aggressive of the two. And there was a period when Tolkien's copyrights were challenged in the courts, which eventually ruled that the rights had not lapsed and that the Tolkien family still had control. Even the story about asking for legal assurance and getting bad advice sounds familiar; I've heard a similar story about Iron Crown's TOLKIEN QUEST and (especilly) NARNIA QUEST pick-a-path books.
There are quite a few other references to Tolkien and the early days of D&D, which I'll try to pull together into a third and final post regarding the CHEERS GARY book once I've finished with it and read all the way through. But the Tolkien Enterprises bit more than makes picking up this book worthwhile.
--current reading: CHEERS GARY