LOS ANGELES - The heirs of J.R.R. Tolkien and a movie studio that produced the blockbuster The Lord of the Rings trilogy have settled a lawsuit over the films' profits, it has been announced.

The out-of-court resolution clears the way for a two-film prequel based on Tolkien's novel The Hobbit to be produced by Peter Jackson, and will benefit charities around the world, according to a joint press release announcing the settlement.

The lawsuit had sought to rescind New Line Cinema's rights to make films based on the book.

Tolkien's heirs sued New Line Cinema in February 2008, claiming the studio owed it millions in profits from the movies released between 2001 and 2003. The films earned an estimated US$6 billion in sales of movie tickets, DVDs and merchandise.

No settlement paperwork has yet been filed with a Los Angeles court. The terms of the deal are being kept confidential.

"We deeply value the contributions of the Tolkien novels to the success of our films and are pleased to have put this litigation behind us," said Alan Horn, president and chief operating officer of Warner Bros. Entertainment Inc.

Warner Bros. acquired New Line in March 2008.

One of the main beneficiaries of the settlement is The Tolkien Trust, a British charity that supports causes around the world.

Christopher Tolkien, one of the author's trustees, said the lawsuit was regrettable, but the estate is "glad that this dispute has been settled on satisfactory terms that will allow The Tolkien Trust to properly pursue its charitable objectives."

Bonnie Eskenazi, an attorney who handled the lawsuit for the Tolkien estate, said the settlement vindicated the heirs and will touch more than just movie audiences.

The lawsuit claimed Tolkien's trust received only an upfront payment of $62,500 ($NZ91,800) for the three movies before production began but was due 7.5 percent of the gross receipts.

Jackson, who directed The Lord of the Rings trilogy, will serve as executive producer on The Hobbit films. The prequels have already endured a legal path as treacherous as the story's trek by hobbit Bilbo Baggins to the Lonely Mountain.

Jackson and New Line feuded for a year over the trilogy's profits before reaching an agreement in 2007 that cleared the way for work on The Hobbit.

The two prequels will be directed by Guillermo del Toro, who directed the two Hellboy movies and Pan's Labyrinth.